Retirement Planning is one of the most important part of a complete financial plan. No financial plan can be complete without a well-laid-out retirement plan. Retirement planning is often the most neglected part of an individual’s financial plan as other responsibilities and requirements take precedence.
Everyone has to retire at some point in time, however, executing a proper retirement plan would ensure that your post-retirement life would be stable and secure. A proper retirement plan would include carefully estimating one’s future expenses and then securing the same as a fixed and regular income after adjusting the inflation till one’s death.
A good retirement plan as mentioned above needs to have a steady flow of income till one’s death. A prudent retirement plan should not be dependent on the stock market’s returns but should be fixed and guaranteed as it would be impossible for one to work post-retirement. There are only a handful of investment instruments that offer guaranteed and fixed returns.
One such instrument is insurance policies. There are various insurance plans that offer fixed and guaranteed returns at the end of the policy terms. The returns of these plans are not dependent on stock market performance and hence never fluctuate. A proper and well-calibrated mix of various insurance policies like a pension plan and lifelong income plan would ensure the desired fixed and regular flow of income one needs for one’s port retirement life.
1) Pension Plan:
A pension plan is the retirement amount that an individual gets from his various insurance companies on a regular basis or in the form of a lump sum. A pension plan can be developed by systematic, disciplined, and regular investment into various insurance schemes from an early age. These pension plans provide guaranteed returns on investments and offer a stable flow of income.
The main objective of a pension plan is to fill the post-retirement phase of an individual with financial independence and dignity through a combination of various regular monthly and lump sum payments.
A properly set up pension plan not only provides a steady income flow but also enables an individual to deal with any uncertainties that may come his way in this retirement life.
2) Life Long Income Plan:
As the name suggests, a lifelong income plan is a plan set up through investment in various insurance plans that offer you a regular and fixed income for the entirety of your life. These plans offer you various types of fixed incomes that will be disbursed monthly, quarterly or yearly.
A lifelong income plan does not only provide you with a fixed income till your death, it also gives a lump sum to your nominee as a death benefit in case of your death. These plans are one of the most preferred plans by all for retirement planning as they give guaranteed returns over a long period of time.
A pension plan is a smart retirement planning tool that enables you to maintain your standard of living post retirement. By investing in a retirement pension plan, the policyholder is entitled to receive monthly payouts in the form of a pension after his/her premium payment term is over.
The different types of pension plans are:
1. Deferred Annuity
2. Immediate Annuity
As your date of retirement is approaching, you need to arrange for guaranteed regular income for the rest of your life. Invest one lump sum amount in buying an annuity plan and start receiving regular income for the rest of your life. A Single Premium plan that gives you a guaranteed income throughout your retired life. On the death of the annuitant, the entire Purchase Price will be paid to the nominee or legal heirs as a death benefit.
Traditional Plans in India
In today’s day and age, maintaining financial stability has become quite difficult for most individuals. Understanding the requirement of financial stability in an individual’s life, the insurance companies have come up with guaranteed income plans. The guaranteed income plans are specifically designed to cater to the requirements of the risk-averse investors and offer them the benefit of life insurance along with maturity benefits and regular guaranteed payouts. The guaranteed income plan offers financial security by providing regular income at a pre-defined percentage (selected by insured and insurer) of Sum Assured. The USP of the plan is that one can receive the income yearly, half-yearly, quarterly, or monthly. This innovative insurance product is a traditional plan that comes with a bonus facility, where the insurance holders are not required to worry about the ups and downs of the market; rather they get to enjoy the maximized returns.
Guaranteed Income Plans are designed for salaried people who fall in the age bracket of 18-60 years and policy term for them extends from 10 years to 30 years.
• It is a variant of a life insurance plan that offers regular income for a specified term varying from 10-30 years.
• Offers vested reversionary bonus along with terminal bonus, if any, at the time of maturity.
• Provides death benefits as well as maturity benefits.
• Provides the benefit of tax exemption.
• Policy term varies from 10-30 years.
Benefits of Guaranteed Income Plans
At the time of maturity, the life insured receives the simple reversionary bonus along with a terminal bonus, if any. In case, the payout period is approximately 15 years, then the insured is paid the regular amount which is pre-defined percentage of the sum assured.
In case of unfortunate event of death of the insured during premium paying term, the nominee of the policy receives the basic sum assured amount along with the reversionary bonuses and terminal bonus if any. And, the payouts are carried for the next 15 years or as mentioned in the policy. In case of demise of the insured after premium paying term or during the payout period, the nominee receives the sum assured amount along with the other benefits.
Income Tax Benefits
Tax deduction under Section 80(C) is available every year and tax exemption under Section 10(10D) is available on the maturity proceeds, subjected to the terms and conditions.