A pension plan is one of the best financial tools that can help you prepare for your retirement. Read on to know how.
What is a pension plan?
The plan gives you financial security and independence in your retirement life. Also, known as retirement plans, they offer a combination of life insurance and wealth creation opportunities using compounding. You need to pay a fixed amount regularly for a specific duration. The plan gives out a constant flow of pension regularly after you retire. Some plans even offer the option of a lumpsum payout.
The plan can aid you financially when you are not earning actively. It allows you to lead a financially independent life, without having to compromise your standard of living.
What are the features of a pension plan?
Before you purchase any policy or invest in a plan, it is necessary to understand what exactly it offers and how it will benefit you. So, here are some salient features of the plan that you need to know:
Annuity refers to the regular payment that you will be receiving from your plan fund. You can choose your annuity to be monthly, quarterly, half-yearly, or yearly, as per your requirements.
Vesting age refers to the age at which you will begin receiving the annuity from your pension policy.
The accumulation period refers to the time during which you make your investments in the plan to accumulate wealth and build a corpus for your goals.
The payment period refers to the time when you will be receiving the payment from the plan after your retirement.
You can choose to surrender the plan before its maturity. The amount that you will receive after surrendering the plan, is the surrender value.
What are the benefits of a pension plan?
Here are some benefits of purchasing the plan:
Regular income even post-retirement
Once you’ve retired from your working life, you will want to live a stress-free and hassle-free life. The plan, with its regular payouts, will have you covered and provide the financial support you need in your retirement years.
You can choose an add-on rider in your plan, which will pay the sum assured from your plan to your nominee, in case of your untimely demise. With this, you can keep your family financially secured even in your absence.
You can avail tax benefit under section 80CCC and Section 10(10A) of the Income Tax Act 1961. Consult with your tax advisor for more details.
You can choose a premium payment term as per your financial situation and requirements. Also, you can customise the plan to best suit your financial needs. You can also use a pension plan calculator to figure out what term and payout mode suits you best.
Who should opt for a pension plan?
This plan can be an integral part of every person’s retirement planning. Since old age brings a lot of age-related ailments, medical expenses tend to increase. A pension plan is extremely useful in this case. Hence, experts recommend that this plan is a must if you are planning for your retirement regardless of what life stage you are at.