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Popular Retirement Schemes in India




Senior couple at park

Retirement planning is important to ensure financial freedom and safety in the absence of a regular source of income. An effective plan would focus on building a corpus that offers financial independence and allows retired individuals to continue their current living standard without any strain. It will also allow individuals to pursue their long-standing goals and meet their dreams. However, a large part of the success of such a plan depends on the type of retirement planning instruments it uses.  In other words, retirement planning schemes are a key part of such financial plans and their features would help meet goals without compromising. Choosing among popular retirement schemes in India can help build a source of income.

What’s the need to invest in a retirement scheme?

The cost of living is rising at a rapid rate and is likely to surge further by the time of retirement. Additionally, with rising age, it is important to account for medical emergencies. In the absence of a regular income stream, it would be difficult to cater to these increases, especially if they rely entirely on savings or investments.

Retirement plans can offer financial assistance, allowing one to enjoy financial freedom in retired life.  They are actually financial tools that allow individuals to accumulate funds for retired life. By investing money towards a retirement fund, individuals can build a reliable corpus. This phase can be divided into two broad phases –

  • Accumulation stage: In this stage, individuals pay a certain amount of money regularly till they retire.
  • Vesting stage: In this phase, individuals start to avail a steady flow of income to support their lifestyle after retirement.

National Pension Scheme 

This is a government-backed retirement planning scheme that acts as a financial cushion for individuals after their retirement. NPS requires individuals to invest in the scheme till they turn 60 years of age and must invest at least Rs. 1000 into their NPS account. Notably, there is no upper limit on investment and the money gets parked in the preferred choice of debt and equity funds. So, returns from NPS depend largely on the performance of the chosen funds. Following retirement, individuals can withdraw at least 60% of their savings and use the remainder to purchase an annuity.

Public Provident Fund

It is a long-term investment option that comes with a tenure of 15 years. The long tenure of the plan assures a compounding effect on the invested amount and helps build a reliable corpus. Individuals can pay an upfront installment or choose to pay 12 times a year. However, in a year they can invest up to Rs. 1.5 lakhs in the PPF account.  This scheme is also eligible for tax deductions under Section 80C of the Income Tax Act of India, 1961. Notably, the funds in question are not market-linked and the government is responsible for setting the NPS interest rate every quarter based on the profits earned on government securities.

Employee Provident Fund 

It is a government-backed savings instrument for salaried individuals where both employees and their employers make contributions. The EPF share is deducted from an employee’s account every month which then attracts interest. Once they retire, they receive the corpus contributed by the employer along with the interest amount.

Annuity plans

These plans offer a life cover similar to a life insurance policy and a source of income. During an unforeseen situation, the family of the account holder receives a lump sum payout based on the plan. Typically, there are two types of annuity plans.

Deferred Annuity

It is a contract that helps individuals build a corpus for their retired life. It allows individuals to make a lump sum payout or regular premiums over a predetermined period of time, enabling individuals to invest as per their source of income. The pension kicks in once the policy period ends. 

Immediate Annuity

In this annuity plan, individuals pay a lump sum amount to receive guaranteed income for the rest of their retirement life. In this case, the payout starts almost immediately after the lump sum payment. Additionally, individuals can avail of tax benefits on the premium paid.

Who Should Consider Getting a Retirement Scheme?

Retirement schemes such as pension and annuity plans are effective financial instruments to achieve one’s retirement goals. These schemes offer required financial support which enables individuals to lead a financially independent lifestyle post-retirement.

Having a comprehensive retirement plan that not only helps lead a financially independent lifestyle but also helps meet financial goals like traveling, starting a new venture, or buying a house or a car, is a good roadmap to lead a financially secure retired life. Today, most pension plans offer regular income which helps meet daily living expenses and meet financial obligations easily. This comes in handy in many ways to meet expenses, pay for future obligations, and meet medical emergencies.

However, for a more comprehensive financial future for retired life individuals need to invest money into an array of financial tools beyond retirement schemes. For instance, having separate medical corpus and emergency corpus is a great way to ensure that individuals do not become entirely dependent on pension amounts and strain their limited income.

Additionally, having a corpus for retirement could also prove useful and allow individuals to take care of long-term goals with ease without compromising or delaying them.

While today, several financial tools are available in the market to build one’s retirement corpus, individuals should pick those that match their needs and requirements. Individuals who wish to generate immediate income should look for pensions and annuities with immediate payouts rather than options that start payout after years. These plans are best suited for those who are already retired or about to retire. On the other hand, individuals who still have a long way to retire can consider parking their money into retirement schemes that allow them to mobilize small savings to help accumulate wealth. This approach will lower their immediate financial pressure to build a corpus and help them save up by the time they retire.

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