How a pension policy should be integral part of retirement planning


Retirement is a serious phase of life looming over everyone’s head. It is inevitable for all of us, sooner or later. Not having a regular source of income for a person who has always lived his/her life in the same way can be difficult at first. We should plan to be not dependent on anybody during this phase of our lives and this can be achieved only through meticulous retirement planning. Adequate retirement planning also helps you to meet unexpected expenses without a worry. One of the elements of this is investing in a good pension scheme. Here are a few points to be noted for choosing a good pension policy for you –

What is a pension policy?

Pension policyis an investment plan that lets you allocate a part of your savings to accumulate over a period of time and provide you with steady income after retirement. These pension schemes provide you with financial security so that when your professional income ends, you can still be financially capable to live without compromising much on your living standards or lifestyle. Given the rising living cost and inflation, retirement plans in India has become all the more important.

To have a dignified retired life

A penny saved today will become a hefty amount on your retirement; let’s say when you are 55-60 years of age. Retirement planning should start when you are in your 20s and got your first job. If you start retirement planning in this age and save at least 10-15 per cent of your total income every month in a pension plan, then you will be able to collect a sum which should be sufficient enough to provide you a dignified retirement.

However, if you start the retirement planning in your late 30s or 40s, then you will be required to save more every month and that may put a strain on your budget. This may also lead to making compromises on your lifestyle which you may not like. Therefore, it is better that you start retirement planning early and must save a certain portion of your income for investment in pension plans. By the time you retire at an age of let’s say 55-60, you will have a decent corpus with which you can spend to lead a respectful lifestyle during the retirement years.

To get a regular cash flow during retirement years

A pension scheme provides ample regular income in retirement with the help of money saved during your working life. You and your family can maintain its lifestyle when you do have your regular professional income despite constantly rising living costs.

Because pension plans are flexible and scalable

Pension plans are flexible and scalable. Based on your risk taking appetite, you can choose an investment theme ranging from conservative to balance to aggressive. You can also switch between funds as your outlook towards risk changes with age. This flexibility is important as pension schemes are long-term investments and your personal, financial and economic circumstances are certainly bound to change over the long period. In a pension plan, along with investment as a benefit, the core benefit of insurance remains intact, i.e. keeping the family and dependents financial needs secured, in case of demise of the life insured.

As it safeguards the interests of loved ones

Your life is an asset and over your active working years, you leverage this asset to create wealth for self and the family. However, even in your absence you would like to secure your family’s financial future. Through a pension policy you can provide the financial security for your family even when you’re not around.

As it inculcates the habit of saving

Humans are creatures of habit. We can safely make the assumption that we derive comfort from our routines because we get habituated to them. More often than not, a habit allows us to predict and anticipate exactly what will happen in future, without throwing up any surprises. The best way to invest in a pension policy is through regular premiums which can be paid monthly or quarterly. You can choose a date which is closer to your salary payment date. This not only inculcates a habit of saving, it also average outs the cost of your purchase if you investing in a pension plan which is market linked, like equity plan or balanced plan.

CONCLUSION

Getting a regular income from your pension plan investment can be a huge financial support system in a time of your need, day to day expenses, emergency costs and other things. Pension plans should be integral part of your retirement planning for the reasons mentioned above.