Retirement planning 101: Why you need a pension plan in your 20s

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Haven’t you planned for your pension yet? Are you from those who think that pension plans are for later? If yes, then maybe it is time to revisit your decision.  

Each of us has set a standard for living during our employment phase. We stay committed to our our family’s basic needs as well as financial protection. We have a moral obligation to continue doing so even after we retire. And that’s why having a pension plan becomes so important!

A pension plan is a retirement plan that requires a business to make commitments to a pool of funds put away for an employee’s future advantage. The plan should include a thorough understanding of all long-term financial obligations and essential expenses. 

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Generally, there are two stages of pension funds, one is accumulation and other is vesting.

In accumulation stage, you pay a fix amount towards your plan until you retire and in vesting stage, a steady income for life is given to you after you retire.

Benefits of Retirement plan?

It is not difficult to cover your costs as long as you are procuring your month-to-month payments. Yet, post-retirement, you want to have sufficient cash saved to carry on with the rest of your life calmly and maintain a good lifestyle. Listed below are a few of the benefits a retirement plan offers:

  1. To cover basic living expenses

We all need to cover our basic expenses even post-retirement. Since life continues on and the shortfall of our monthly pay could turn into a bad dream. Retirement planning is pursued to keep away from this bad dream from turning into a reality. By arranging and building a sizeable retirement corpus, you can guarantee that your family’s way of life isn’t compromised post-retirement.

  1. To cover clinical costs

As one ages, the number of medical problems and crises also increases. Clinical costs bear the possibility to put a tremendous burden in your pocket. Healthcare insurance plans may cover a part of your clinical expenses but not all.

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Thus, your retirement corpus should be adequately enormous to cover your and your family’s clinical use to stay away from a monetary mash in the later long periods of life. 

  1. To battle inflation

There has been a consistent ascent in the cost of goods and services and it will keep on being on an ascent. This implies that you would need to pay more for everything later on. It is all going to set you back somewhat more later on. Without a sound pension plan, that intends to build up a sufficient retirement corpus representing expansion, future, the pace of return, etc; it would be incomprehensible for you to accomplish all your retirement objectives.

  1. Deal with uncertainties

Life is very eccentric and unsure. Sometimes situations are unfriendly and we might not have expected them. A few circumstances have the ability to make monetary and emotional turmoil. Having a huge estimated corpus to deal with such unexpected occasions can generally act as the hero.

Hence, while you approach retirement, you actually should have an adequate possibility reserve.

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  1. To meet your retirement objectives

Retirement objectives are the targets that you wish to accomplish in your retirement years. These could be voyaging and investigating new spots or taking upside interests that you have for a long time truly needed to seek after. If you don’t plan and save for this large number of retirements objectives, they can’t turn into a reality in your post retirement years. Subsequently, it is significant to select the best suitable retirement plans in India to accomplish this objective.

Features of Pension plan

  • Corpus of funds- With annuity plans, you can construct a corpus of funds that can be utilized to fulfil your monetary necessities post retirement.
  • Limited premium payment term- You can pay premiums for a limited term of 5/7 or 10 years dependent on your necessities.
  • Lifelong income- Pension plans provide long lasting ensured income as an annuity.
  • Minimum guarantee: Pension plans offer the least guaranteed sum. In light of IRDAI rules, there ought to be “on zero returns” on all premiums or guaranteed maturity benefits. Most organizations offer at least 1% of the absolute premium over the total policy term.
  • Tax benefits: Pension plans are qualified for a tax deduction under section 80C.

Even if you have secured your future post retirement, you can never be sure that the savings will be enough. Uncertainties can knock your door anytime. A fixed amount of money can not deal with such uncertainties. One must invest in retirement plans in India to secure the future and leading a peaceful life.

FAQ

All said and done, by now you may have few questions related to pension plans or tax benefits or. While it’s too difficult to address every question here, we have mentioned three questions people ask very often.

  1. Are Pension plans taxable?

Defined benefit plans are fully taxable. For a government employee defined contribution plan is completely exempted and for the non-government employee, it is partially exempted.

  1. How does a pension plan work?

A typical pension plan has two stages – accumulation and annuity. During the accumulation period, you pay the premiums for the plan. During the annuity stage, your investment gets returns and you begin getting a pension.

  1. Who should opt for Pension plans?

To secure their retired life, every person should invest in pension plans. There are many retirement plans in India, one can select the best based on their requirements.

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