Understanding The Different Types Of Retirement Plans Available And Which One Should You Buy?

 Retirement planning is a process of evaluating your financial readiness when your retirement kicks in. It enables you to map out the source of income, execute a savings strategy, and size up future expenses. 

Retirement plans also feature numerous types. Although most people find themselves muddled between various types of Retirement plans, they are pretty easy to understand if we know what our goals are. While each type of plan comes with its benefits and limitations, evaluating them comprehensively is crucial before you move ahead to purchase one of them. 

Eight Types Of Retirement Plans 

Immediate Annuity 

In an Immediate Annuity plan, retirement pension is released immediately post retirement. The policyholder is required to pay a lump sum amount to the insurance company, after which the pension is released right at the moment of when the policyholder retires. Under this plan, the insured can choose between a range of annuity options. The premiums are also tax-exempted for added flexibility. If the policyholder passes away due to an unforeseen situation during the tenure period, the pension will be passed on to the nominee.

National Pension Scheme (NPS) 

The NPS pension plan was launched by the government of India as promised improve the financial condition of the policyholder after their retirement. The money invested in the National Pension Scheme can be put into debt or equity according to the policyholder’s convenience and preference. The policyholder can make a 60% withdrawal during the retirement period and the next 40% to purchase  annuity. 

Deferred Annuity 

This type of scheme authorizes the policyholder to gather money via a single premium plan or a regular one during the tenure period. Once the tenure period expires, the policyholder will receive their retirement money. The program also offers tax-exempted benefits that are linked with the scheme. However, in this type of plan, only a subsequent ⅓ rd of the corpus is free during the withdrawal period; the rest 2/3rd is taxable. 

If the policyholder invests the money in a deferred pension plan, it gets locked. So, even during an urgency, they cannot turn to this money for help. The policyholder can buy this plan either by a one-time payment or a series of regular premium payments. So, any investor can make use of it without any hassle. 

With/Without Cover Pension Plans 

When the policyholder passes away due to any unforeseen situation during the term, their beneficiary will receive the amount. However, this amount is generally not very high as some premium is already paid in growing the corpus rather than covering for the death claim. This is ‘With Cover Pension Plan’. 

Under the ‘Without Cover Pension Plan’, the insured individual does not receive any life cover. SO if they die, the nominee will only receive the corpus. Deferred pension schemes come with this type of life cover, while immediate annuity schemes do not deliver any such option. 

Pension Funds 

This type of pension plan remains for the long term. In this category, the pension plan provides a better return than the maturity. Today, many insurance companies offer pension funds to encourage policyholders to pull back their annuity sum during the aggregation stage. Such a thing guarantees that the policyholder is available to combat any unforeseen crisis in case it occurs. It also helps you become independent by not leaning on banks for the loan at any crucial hour. 

Defined Benefit

The defined benefit plan allows the policyholder to pay particular money for their pension. So, depending upon the policyholder’s earnings for the number of years they have served the employer, the amount depends on the policyholder’s payments. So, this means that in most plans, your employer can also contribute to your pension. They are responsible for guaranteeing and contributing a decent amount of money to help you receive future benefits. If there is no money, the employer will need to pay the difference. 

Defined Contribution 

In this plan, the retirement income is not guaranteed, but the contributions are made so. Both you and your employer can make contributions to the project. So, some of your contributions can match that of your employer. But it is your responsibility to contribute to each commitment to grow your pension money. During your retirement, you can make use of some funds to develop a retirement remuneration.

Whole Life ULIPs 

Under this plan, the policyholder’s money remains invested for an entire lifetime until they reach their retirement period. During this time, they can withdraw the money and receive a tax-free income. One can make additional withdrawals as and when necessary. 

The Bottom Line 

Your retirement plan is a big step. Make sure you comprehensively read up on the various types of retirement plans to scout for the best one for yourself.