Pension plans are essential instruments that help individuals park their savings to build a safe future for their retired life. Typically, retirement plans are designed to help individuals accumulate funds through strategic investments or lump sum amounts. The primary aim of such plans is to help generate a steady flow of income to secure their retired life. Notably, the success of such pension plans depends on the type of plan one picks and how long they remain invested in them. Since staying invested for a long time helps accumulate wealth, it is often recommended to invest in a preferred pension right from an early age and continue the practice till retirement.
That said, let’s discuss some of the most popular retirement plans that help accumulate wealth and help build a corpus for a safe and secured retired life.
Popular Pension Plans That Help Generate a Monthly Stream of Income
Investing money in a monthly pension plan is a great way to build financial discipline and build a corpus with limited earnings. Some of the most popular pension plans to generate a stream of income over time include these options. Based on one’s goals and preferences, individuals can pick a plan and park money into it –
- Fixed Deposits and Recurring Deposits
These two are among the most popular investment options available in the market today. Typically, both fixed and recurring deposits are known to extend higher interest rates than regular savings options. In addition, the interest rates applicable to senior citizens are significantly higher than those extended to regular customers. These deposit schemes are considered to be suitable for pensioners as they do not expose the holders’ earnings to market volatility, making them safer than market-linked investment instruments. Senior citizens are also entitled to tax exemptions on the interest they earn on fixed deposits and recurring deposits. For instance, Section 80TTB of the Indian Income Tax Act allows individuals to claim up to Rs. 50,000 in a year.
- Post Office Monthly Income Scheme (POMIS)
This effective investment pension plan helps generate a regular stream of monthly income. Typically, POMIS comes with a minimum maturity period of 5 years and extends substantial tax benefits. For instance, POMIS holders can claim up to Rs. 1.5 lakhs on their yearly deposits. However, individuals have to pay taxes on the interest income they accrue on their POMIS investment.
- Senior Citizen Savings Scheme (SCSS)
This is counted among the best pension plans for individuals who wish to put their money in investment schemes for the long term. It allows individuals to invest up to Rs. 15 lakhs in an SCCS account in a year and has a lock-in period of at least 5 years. However, they can extend the tenure by another 3 years. The pension plan is known to extend substantially higher interest rates compared to savings plans or fixed deposits. Individuals can also add a nominee to their account who will avail of the scheme benefits in their absence. Notably, the accumulated SCSS funds are transferred to the nominee of the scheme. However, to safeguard the future of their nominee they can avail of a comprehensive life cover and make the SCSS holders are also eligible to claim tax benefits of a maximum of Rs. 1.5 lakh in a year under the Indian Income Tax Act’s provision of Section 80C. Those interested can readily fill up a form and apply for the scheme at any of their nearest post office and banking institutions.
Investment Plans to Achieve Growth Objectives
Individuals planning their lives post-retirement typically have multiple options for building a corpus. One such option is the final salary pension transfers. Such plans usually help individuals to grow their savings over time to build a substantial corpus. Here are a few of the most popular pension plans for growth that offer inflation-adjusted returns –
- Mutual Fund Schemes
Mutual fund investment schemes are one of the most popular means to mobilize savings and build a corpus. Historically, investing in popular mutual fund schemes is known to offer inflation-adjust earnings and allow investors’ wealth to grow. Investors can also park their money into tax-saving mutual fund schemes and save up to Rs. 1.5 lakh in a year under Section 80C of the Income Tax Act. However, mutual fund options expose individuals to several market risks which can often impact their capital during market slowdown. This makes it imperative for individuals to pick mutual fund schemes that match their risk-taking capacity and financial goals for retirement.
- National Pension System (NPS)
Those belonging to the age group of 18 to 65 years can apply for this pension scheme. NPS is specifically designed to mobilize savings regularly towards retirement corpus. The popular pension plan allows individuals to invest their savings in government securities, equities, and government-backed securities. Individuals can invest across their preferred investment options based on their risk profile. The scheme comes with an auto-choice option which allows investors to allocate their resources according to their age and financial requirements. While individuals can appreciate their hard-earned money and generate earnings, the allocation is capped at 75%. Investors can put their money into NPS until they turn 70, which offers them ample time to appreciate their earnings over time to build a reliable corpus for retirement.
They can also claim tax benefits under the Indian Income Tax Act. Section 80C allows NPS account holders to claim a maximum of Rs. 1.5 lakhs in a year, and an additional Rs. 50,000 under Section 80CCCD.
That said, they must adopt a balanced approach when it comes to investing to generate steady returns. Typically, it is advised to park their money for a long tenure to spread out the associated risks and maximize the benefits of the pension plan.
Steps to Use an Online Pension Calculator
Individuals can use these steps to use an online pension calculator and find out if the plan would help them save up for their future –
Step 1: Look for an online pension calculator
Step 2: Open the pension calculator
Step 3: Enter your age, tenure, and monthly expenses
Step 4: Enter the expected age you wish to start receiving a pension
Step 5: Click on the calculate option
After these steps are followed, the maturity amount will appear on the screen. It will help individuals decide whether the pension plan is suitable for their financial plan or not. In case the result is not satisfactory, they can tweak the variables and compute again and again until they find a suitable plan.
Also read: Make goals with no fear – Invest in the right savings plan
