Retirement planning is a crucial aspect of financial management that ensures a secure and comfortable future. It includes strategizing as well as allocating funds in a manner that permits individuals to maintain their existing lifestyle and mitigate their crucial goals even post they stop working. Owing to the rise in living cost, inflation, and higher life expectancy, it has become essential for individuals to plan out their retirement in a careful manner. One effective way to enhance returns and build a substantial corpus is by leveraging pension plans and utilising online FD calculators.
Benefits and features of retirement planning
Long-term savings
It encourages individuals to save and invest consistently over a prolonged period, helping them accumulate a significant corpus. Example: Ms. Gupta started investing in a pension plan early in her career. Through regular contributions, she managed to build a substantial retirement fund, which enabled her to pursue her passion for travel after retirement.
Financial independence
Retirement planning provides financial independence by creating a source of income to sustain one’s lifestyle during the retirement years. Example: Mr. Sharma, a retired individual, has been receiving a regular pension from his pension plan, allowing him to cover his monthly expenses without relying on others.
Investment growth
By investing in pension plans, individuals can benefit from the compounding effect, allowing their investments to grow over time. Example: Mrs. Patel started contributing to a pension plan at the age of 30. With the compounding effect, her investments grew substantially, ensuring a comfortable retirement.
Tax benefits
Pension plans offer tax advantages, allowing individuals to reduce their taxable income and enjoy tax-free withdrawals on maturity. Example: Mr. Singh utilised the tax benefits offered by his pension plan to save a considerable amount on his annual tax liability. Note that to make a decision on how much to invest periodically, he used an online FD calculator.
Enhancing returns with pension plans
Assess risk appetite
Understand your risk tolerance and choose a pension plan that aligns with your investment preferences. Example: Ms. Reddy, who preferred a conservative approach, opted for a pension plan with a guaranteed return, ensuring stability in her retirement income.
Start early
Begin your retirement planning as early as possible to take advantage of the power of compounding and accumulate a sizeable corpus. Example: Mr. Kumar started investing in a pension plan at the age of 25. By the time he retired, his investments had grown significantly due to the extended investment horizon.
Regular contributions
Contribute consistently to your pension plan to harness the power of compounding and build a substantial retirement corpus. Example: Mrs. Khan contributed a fixed amount to her pension plan every month. Over time, her contributions and accumulated interest resulted in a sizable retirement fund.
Diversify investments
Factor in retirement portfolio diversification by investing in a blend of debt, equity, and balanced plans to lower risk and enhance returns. For instance, Mr. Das diversified his investment in pension scheme by allocating a part of the equity linked pension schemes, which offered higher returns in the long run.
Monitor performance
Keep track of your pension plan’s performance and make necessary adjustments if required to ensure optimal returns. Example: Mr. Joshi regularly reviewed the performance of his pension plan and switched to a better-performing plan when he found one.
Optimise Tax Efficiency
Understand the tax implications of your pension plan and utilise available tax benefits to reduce your tax liability. Example: Mr. and Mrs. Singh invested in a pension plan that allowed them to avail of deductions under Section 80C, reducing their taxable income.
Avail additional benefits
Explore pension plans that offer additional benefits such as a regular income for life, increased payouts in case of critical illness, or a joint-life annuity. Example: Mrs. Verma chose a pension plan that provided an increased payout if she or her spouse were diagnosed with a critical illness during the policy term.
List of 7 pension plans for retirement planning
National Pension System (NPS)
NPS is a voluntary pension scheme regulated by the Pension Fund Regulatory and Development Authority (PFRDA). It offers a choice of investment options and allows individuals to contribute regularly during their working years. On retirement, a portion of the accumulated corpus can be withdrawn as a lump sum, while the remaining must be used to purchase an annuity.
Atal Pension Yojana (APY)
APY is a government-backed pension scheme targeted at the unorganised sector. It provides a fixed pension amount to subscribers after they reach the age of 60. The contribution amount and pension payout depend on the individual’s age at entry.
PPF or public provident fund
PPF is a scheme backed by the government that provides attractive rate of interest and tax deduction benefits. It has a maturity period of 15 years, and individuals can make regular contributions to build a retirement corpus.
EPF or employee provident fund
EPF is a retirement scheme mandatory for the salaried classes. Both the employer and the employee make regular contributions to the EPF account, which earns interest. On retirement, individuals can withdraw the accumulated corpus or convert it into a pension through the Employees’ Pension Scheme (EPS).
Senior Citizen Savings Scheme (SCSS)
SCSS is a savings scheme specifically designed for senior citizens. It offers a higher interest rate than regular savings accounts and has a maturity period of 5 years, extendable by an additional 3 years. The interest earned is taxable, but the scheme offers tax benefits under Section 80C.
Employees’ State Insurance Scheme (ESIS)
ESIS is a social security scheme for employees in specific industries. It provides medical, disability, maternity, and dependent benefits, ensuring financial security during retirement or in times of need.
Pradhan Mantri Vaya Vandana Yojana (PMVVY)
PMVVY is a pension scheme exclusively for senior citizens aged 60 years and above. It provides a guaranteed regular income for 10 years. The scheme offers a higher interest rate than other fixed income instruments, and the pension received is taxable.
Central Government Employees’ Pension Scheme (CGEPS)
CGEPS is a pension scheme applicable to employees of the central government. It offers a defined benefit pension based on the individual’s length of service and average emoluments.
Ex-Servicemen Contributory Health Scheme (ECHS)
ECHS is a healthcare scheme for retired armed forces personnel. It provides comprehensive medical facilities to veterans and their dependents, ensuring their well-being during retirement.
State Government Pension Schemes
Various state governments in India have their own pension schemes for their employees. These schemes provide retirement benefits and financial security to state government employees upon retirement.
Conclusion
Retirement planning plays a crucial role in securing a comfortable future, and by leveraging pension plans and online FD calculators, individuals can maximise their returns and build a substantial corpus. Starting early, diversifying investments, making regular contributions, and monitoring performance are essential strategies to enhance returns. Additionally, availing tax benefits, assessing risk appetite, and exploring various pension plans can further optimise retirement planning. Remember, the power of compounding and the benefit of time are invaluable, so begin your retirement plan as early as possible to enjoy the compounding effect and accumulate an adequate corpus. Secure your financial future today with a well-thought-out retirement plan that suits your needs and goals.
