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Disclaimer: This Article is for information purposes only. The views expressed in this Article do not necessarily constitute the views of Kotak Mahindra Bank Ltd. (“Bank”) or its employees. The Bank makes no warranty of any kind with respect to the completeness or accuracy of the material and articles contained in this Article. The information contained in this Article is sourced from empaneled external experts for the benefit of the customers and it does not constitute legal advice from the Bank. The Bank, its directors, employees and the contributors shall not be responsible or liable for any damage or loss resulting from or arising due to reliance on or use of any information contained herein. Tax laws are subject to amendment from time to time. The above information is for general understanding and reference. This is not legal advice or tax advice, and users are advised to consult their tax advisors before making any decision or taking any action. Mutual Fund investments are subject to market risks, read all scheme related documents carefully.
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Introduction
Securing your future financially is important to ensure stress-free and quality life. In that sequence, retirement and pension plans are a great way to beat inflation and secure finances post-retirement. These plans are an excellent means to ensure security and financial stability for your old age. The sooner you start investing in a plan, the smoother your financial journey becomes.
However, different types of pension plans are available for investment, including deferred and immediate annuities, PPF, NPS, etc. Here is a guide to choosing the right plan to suit your requirements and expectations.
What are Pension Plans?
Pensions or retirement plans are investments in which people regularly invest some portion of their income to accumulate wealth over a period and achieve financial security for retirement. Investing in a plan lets the investors live with pride without sacrificing their living standard post-retirement.
Considering the increasing inflation rates and living costs, retirement planning has become integral to everyone’s life. These plans are beneficial when you need immediate funds to deal with any emergency. Investing in the right plan lets you accumulate wealth and can significantly affect your final aggregation.
Who Should Opt for Pension Plans?
Everyone, regardless of age and gender, should buy pension plans in India to secure their finances post-retirement. Those looking to save money on tax obligations should also consider investing in pension plans covered under Section 80C of the Income Tax Act 1961. These plans provide tax benefits of up to Rs. 1.5 Lakh, helping gain long-term financial security.
Types of Pension Plans in India
Your pension plan differs based on whether you are salaried, professional, or run a business. There is no “one-size-fits-all” concept when it comes to retirement planning. The various types of pension plans available in India include the following:
How to Choose the Best Pension Plan?
With so many types of pension plans available, follow these steps to choose the best one:
Five Things to Consider When Buying a Pension Plan
Below are the key factors worth considering when choosing the best retirement pension plan:
How Much Should You Invest in a Pension Plan?
How much you invest in a retirement pension plan depends on various factors, including your current age, retirement age, desired lifestyle post-retirement, and other income sources after retirement. While pensions can be a reliable income source for retirement, saving additional funds is still essential to ensure financial security.
According to a common rule, you must save at least 10-15% of your annual income, including employer contributions to your retirement account. However, the particular amount you must save varies based on your circumstances. A financial advisor can help create a personalised retirement plan while considering your pension and other income sources.
Choose the Right Pension Fund after Understanding Your Investment Needs
Selecting a retirement pension plan according to your investment objectives and risk appetite is important to achieve the desired returns. Here is a comparison of various pension funds and their investment strategies:
How Do Different Pension Plans Affect Your Investment Amount?
Different pension plans in India require different investment amounts. Here’s a brief analysis
Conclusion
Retirement planning is an important part of managing your finances post-retirement. Rather than relying on your investments and savings, you can use these retirement and pension plans to retain your self-respect during your golden years. So, plan your retirement judiciously and spend your retirement years peacefully.
Frequently Asked Questions
What are the three most common pension plans?
NPS, PPF, and annuity are the most common pension plans in India.
What are the three types of pension?
Three types of pension plans worth considering are those with and without life cover, immediate and deferred annuities, and traditional and unit-linked plans.
Which pension plan is best?
NPS is the best retirement pension plan because it offers unmatched flexibility, high returns, a mix of lump sum withdrawal and annuity, and attractive tax benefits.
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