What is a Retirement Plan – What are its Features
Your retirement should be the best part of life. After all, you work hard to achieve your dreams and fulfil your responsibilities. You save today so that you have a surplus for tomorrow. Therefore, you would like to have peace of mind after you retire, right? You may want to relax, inculcate a hobby or look back on your journey till now.
All this is possible with some planning and smart choices you make. Keep reading to know about retirement plans and how they can help you achieve this last mile.
What is a Retirement Plan?
A retirement plan is a type of life insurance plan designed to fulfil the post-retirement needs of an individual. It helps create a corpus amount and generate a regular income after retirement in the form of a pension. Hence, it is also known as a pension plan.
A good pension plan:
- Outlives your lifespan and thus, helps you maintain your living standards.
- Keeps your investment safe
- Helps to beat inflation
Features of a Retirement Plan
1. Regular and Guaranteed Income: – It provides a regular and steady income after retiring or immediately after investing, depending upon the type and options chosen.
2. Income Tax Relief: – As per section 80CCC of the income tax act, 1961, a deduction of Rs.1.5 lakhs is applicable on investment in pension plans. It is important to note that this deduction cannot be claimed separately from section 80C. It simply means that the total tax relief claimed under section 80C and 80CCC cannot be more than Rs.1.5 lakhs which includes all 80-C eligible investments such as ELSS funds, tax-saving fixed deposits, PPF (Public Provident Fund), etc.
3. Lifetime Payment- Payment duration is the total duration for which you keep receiving the pension after retirement. For instance, if your plan offers to pay you a regular income from the age of 60 to the age of 75, then the payment duration is 15 years. Some plans, like Lifetime Income Plan, offer an option for pension for the lifetime of the insurer. In such cases, the payment duration is as long as the insurer lives.
4. Death benefits: On any tragic and unforeseeable occurrence, such as the death of the insurer, the nominee receives an amount as death benefit from the insurance firm as compensation. It is common to add accident benefits too under this rider.
5. Diversification Option:
Many retirement plans, such as the Premier Pension plan, let you choose your funds’ asset allocation, providing you with the flexibility to diversify your funds based on your objectives and risk appetite.
6. Earn Bonus: Some of the plans also provide a bonus every year after a few years to ensure your fund grows over time. Premier Pension Plan provides a bonus every year starting from the 6th year.
Retirement plans offer many essential benefits to investors, helping them build a corpus for retirement while also enabling them to plan for their regular income post-retirement. Do note that not all plans are the same. Some plans may have different features. It is crucial to choose the right plan that comes with features suited to your needs.