Planning savings for your retirement — pension and retirement plans

Pension plans are a relatively recent phenomenon in India and come in different forms with options for you to chose. They are also tax saving instruments, because premiums paid are exempt from income tax. There are instant plans where payment starts the moment you invest the money. Such plans are not really worth it unless you are planning to dump your gratuity after retirement into the pension plan and earn a minimum interest on your investment. These are basically retirement plans for the already retired. So if you are around 60 and invest the gratuity and PF that you have got from your employer in this plan you can get a pension for the next twenty to twenty five years.

Near retirement plans

Then there are pension plans with minimum lock in period that offer you a low fixed income return for the lock in period and a profit sharing plan thereafter. These are also targeted towards the age group that is close to retirement. When choosing your retirement plan you must tend to keep it simple so that you are not confused with too much variables. Remember every pension or retirement plan is based on a math. Hence if you try to do the math yourself you can calculate which plan is proving beneficial to you and which is not.

Early retirement plans

Then there are others that are targeted towards people who have just entered the workplace. These have usually 30 to 40 years maturity after which you can get pension payments. Then there are pension plans with death benefits. These are a bit confusing and the math is more difficult to do. Is a pension cum death plan profitable or is the plain vanilla pension plan more profitable? Do you need death cover considering you already have a life insurance? Different annuity plans exist with different maturity range that can also be pretty confusing. Hence after going through the options, it is better that you think of what you actually need before choosing an option.

Write down your specifications before you chose a plan

This will depend on the age you chose to invest, your retirement income from other savings and your dependence on pension plans to serve you during your old age. People who have invested in property and have a rental income or those who have liquid assets or securities need less of a pension fund cover. Those with no rental income or recurring income will need more pension cover. Once you write down your needs, then chose a plan that is closest to meet the specifications.

Remember the more you are ready to take risks early in life to create wealth, the less you will be dependent on pension plans to cover your retirement expenses. Don’t depend on pension funds to make you wealthy. They can only provide a minimum-security cover. Even Government pension funds are enough to just cover your needs and inadequate to provide you a life of luxury and comfort.