Retirement opens up a new phase of life and you finally have the time to check all the things on your bucket list. You just need to have adequate funds so that you don’t have to compromise on your lifestyle during those post-retirement years.
In the absence of a regular source of income, you have to rely entirely on your savings and investments.
Living costs will rise by the time you retire and you also have to take into account medical emergencies and other unforeseen expenses. Hence, you need careful planning.
Pension funds provide a supporting income, letting you enjoy complete financial freedom even in your retirement years.
What is a pension funds and who should consider them ?
Pension funds are financial tools that help you in accumulating funds for your post-retirement years. By investing a certain amount regularly towards your pension fund, you will build up a considerable sum in a systematic manner. They usually have two stages–
Accumulation stage: You pay a specific amount regularly until you retire.
Vesting stage: Once you retire, you get a steady flow of income for life.
Pension plans are valuable financial tools that can help you achieve your goals. They provide you with the required financial support to live a financially independent life even during your retirement phase.
It helps you to continue your current lifestyle even during retirement. You may also have post-retirement goals, such as buying a house,pursuing a hobby, traveling and more. Pension plans provide you with regular income to help fulfil your financial needs during your retirement.
Types of Pension Plans in India
- NPS
The government of India introduced the National Pension Scheme (NPS) as a financial tool for retired persons. Its features are as follows:
You have to keep investing in this scheme until 60 years of age.
The least sum you must invest is ₹ 1000/- and there is no upper limit.
Your money will be invested in debt and equity funds based on your own preference.
The returns depend on the performance of the funds that you have choosen.
When you retire, you can withdraw 60% of your savings.
You must use the remaining 40% to buy an a a retirement plan offering periodic income.
- Public Provident Fund
PPF is a long term investment scheme with a 15 years of tenure. Thus, the impact of compounding is huge especially towards the end of the term.
Every year you can invest a maximum of ₹ 1.5 lakh in your PPF account. You can pay upfront or through twelve instalments over the full financial year. The government sets the interest rate on PPF every financial quarter based on the profits from government securities and the funds are not market-linked.
- Employee Provident Fund
EPF is a savings platform for salaried employees. Both your employer and you have to make equal contributions for your EPF account. Your share is deducted from your salary every month. The Employees’ Provident Fund Organisation (EPFO) sets the interest rate on the investment of these funds. On retirement, you receive the total funds contributed by you and your employer along with the accrued interests. - Atal Pension Yojana
Any person between the age of 18 to 40 years and having a bank savings account can opt for the Atal Pension Yojana plan. It is a deferred pension plan and there are five options or plans providing guaranteed pension of Rs 1,000, Rs 2,000, Rs 3,000, Rs 4,000, and Rs 5,000 per month by the time the person reaches the age of 60. Based on the amount of pension you will choose, the premium amount will be determined.
