When you think of pensions, they are undoubtedly a major component of your retirement planning efforts. They enable financial independence in your sunset years without any hassles. At the same time, they offer much-needed security in these periods of life as well. Here’s breaking down pension and its major aspects for your benefit.
What is Pension?
It is basically regular income given to people once they retire. This ensures that they have steady funding to meet diverse needs even without being a part of the workforce. The objective of pension is the maintenance of a financially comfortable lifestyle without any dependence on others. It also ensures higher mental peace at the time of retirement.
Types of Pension Plans in India
Now that you know what is pension, here are some of the common pension plan types worth checking out:
- Employee Pension Scheme- The EPFO holds the responsibility of managing this scheme. You can subscribe to it even if you work in the private sector. There are several benefits, including a fixed pension every month once you retire.
- National Pension System or NPS: Once you pay the contributions, they will go into a mix of equities and debt, depending on your risk appetite. The risks are slightly higher, but so are the chances of returns.
- Atal Pension Yojana: The APY offers a fixed pension amount and is tailored to meet the needs of low-income individuals. It offers much-needed security after these people stop working.
- Public Provident Fund: The PPF cannot be called a pension plan in nature. However, you can still use it to build wealth for retirement. There’s a long lock-in period of 15 years, while you also get completely tax-free returns. At the same time, there are no market risks to worry about in this case as well.
- Insurance-Based Pension Plans: You will find these plans available across multiple insurance companies. They offer life coverage in addition to investing a part of the premium towards building a corpus for retirement. This can then be converted into an income stream or pension once you retire.
Advantages of a Pension
- A pension gives you financial independence with regular income. This naturally brings down your dependence on others in the family.
- You can also get tax benefits with several plans like PPF, NPS, and others. This helps you save more money in the long run.
- Pensions can last all through your retirement years, thereby enabling financial security for the long haul.
- There are various pension plans that help you grow your investment with market-linked returns for maximum benefits.
Planning for Your Future
Here are some tips worth considering in this regard.
- Begin as early as possible to benefit from the power of compounding. Making small contributions over several years will help you amass a sizable corpus.
- Keep diversifying your investments, choosing options like PPF for lower risks and NPS for growth possibilities. Diversification spreads risks while scaling up your returns.
- Keep reviewing the performance of your pension plan and adjust your contributions as per your evolving financial responsibilities and objectives.
- Always keep inflation in mind while investing in pension plans. Select only those plans that come with growth options in order to stay in sync with increasing future costs.
Make sure you start securing your future pension at the earliest without any delays. A peaceful and hassle-free retirement journey is always desirable.
