Choosing the right pension plan for your golden years

Life after retirement is said to be the golden period in your life. It is during this time that you can peacefully pursue your hobbies and desires.

Life after retirement is said to be the golden period in your life. It is during this time that you can peacefully pursue your hobbies and desires. But to fulfill all these aspirations in a comfortable manner, you must invest in a pension scheme to reap the benefits of your labor. A pension plan is a retirement savings plan offered by an organization to its employees to help them achieve financial advantages when they retire. The employer maintains a retirement account to give you a fixed payout after retirement based on the salary and the work tenure. Alternatively, you can also apply for a personal pension plan, wherein you can pay a fixed premium every month towards saving for your retirement.

There are several pension plans to take care of your post-retirement expenses. Here’s a closer look at some of them:

  • Immediate annuity: Under this pension plan, you must make a one-time lump sum payment and will receive a regular payout for the rest of their lives after retirement. The payout can either be monthly, quarterly, yearly or semi-annually. This is the best pension scheme for individuals who wish to receive a regular income even after retirement.
  • Deferred annuity: This is a pension plan that defers or delays income payments until the investor chooses to receive them. The deferred annuity plan has two main phases – accumulation, or savings, phase and income phase. In the accumulation phase, the investor pays a fixed premium at regular intervals for a certain number of years. As soon as the accumulation phase ends, the income phase begins. During the income phase, the investor can withdraw 1/3rd of the money that is accumulated. The remaining money is used to buy an annuity product through which regular income is generated for the policyholder. Deferred annuity plan is further divided into two types:
  1. Traditional Retirement Plan: Here the investment is often made in debt investments. This is the most attractive pension scheme for risk-averse investors because of the low risk associated with such financial products.
  2. Unit-linked Pension Plan: This is the perfect alternative for early planners. Unit-linked pension plans offer higher chances of returns to investors in comparison to traditional retirement plans. This plan allows investors to allocate their money in different asset classes, such as debt, equity, etc.

To make the best choice for pension plans, investors can make use of a pension calculator. A pension calculator helps calculate your income requirements in the post-retirement phase based on your annual income, age, accommodation, savings and expected growth rate. It is a very useful tool to help you select the right pension plan and live a stress-free retired life.

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