7 Best Retirement Plans in India
Life is uncertain. We live in an unpredictable world where we are not sure about what's going to happen in the future. With improving life expectancy, it has become more important to secure your future by planning your retirement today!
Retirement planning or Pension plan is a kind of investment plan that enables you to collect a certain section of your savings so that you can build a secured financial future. Retirement Planning allows you to handle uncertainties post-retirement. It facilitates a steady flow of revenue after retirement.
Is retirement planning required for even a person who has a good amount of savings? Absolutely yes! Even if you have saved a lot for your future, opting for the best retirement pension plan is important.
Importance of Retirement Planning
A retirement plan builds a long-term financial cushion. It ensures that you are financially stable even after your retirement. In any retirement plan, the person is required to provide a certain percentage of money according to the terms and conditions. This continues till retirement. The amount that has been accumulated over time is given back to the insured. This is either in the form of a pension or annuity at regular time intervals. The retirement plan not only protects the financial future but also supports a person in handling the eventualities after retirement.
We need money to meet our daily needs after retirement. Savings are not long-lasting. They either get exhausted quickly or are used in emergencies. Therefore, it is crucial to opt for the best pension plan to secure your cash flow. This will enable you to live a contented life post-retirement.
Why Should You Plan Your Retirement Early?
A retirement plan starts providing benefits as soon as you start investing in it. When you invest in a retirement plan early, the money keeps multiplying. This happens due to compounding. The final savings corpus depends a lot on the tenure of investment. You can also opt for a retirement plan in a phased manner.
If you are not investing early, you are missing out on benefits! For example, the return that a person who is 25 years of age will receive compared to 35 or 45 will be much larger. This return will show a substantial difference in the gain.
Points To Be Considered to Choose the Best Pension Plan for A Secured Future
To fulfill the requirements of the people, the market has a wide range of retirement plans. These plans have several classifications, depending on the benefits and plan structure.
Inflation-Adjusted Return
An investor should not just focus on the return percentage while buying a plan. Instead, he/she should always focus on inflation-adjusted returns. This means if consumer inflation is 7% he/ she needs to choose that plan which offers more CAGR than the inflation. This way an individual can truly beat inflation in the longer term. This will give you a correct idea of what amount of corpus is adequate to retain a financially stable lifestyle post-retirement. Investing in a pension plan is a great way to combat inflation.
Guaranteed Pension
Sticking to a retirement plan just because someone advised you is not a good step. One plan that suits a person might not suit another. A guaranteed pension is what will secure a stable life post-retirement. Therefore, you are required to do thorough research on the provided funds offered by the asset management company and by insurance companies. Only then you will understand what exactly you need.
Tax Benefits
The contributions of up to Rs 1.5 lakh for a pension plan provide tax deduction under Section 80CCC. This comprises the percentage spent on renewing an old plan or purchasing a new pension plan. Residents and non-residents can claim tax deductions under this section. Nevertheless, HUFs (Hindu Undivided Families) are not qualified to bring these claims. The withdrawals have taxes on them.
So, what is tax-free? one-third of the corpus obtained by the retiree through the pension plan, after he reaches the age is tax-free. The rest is paid as an annuity. It is taxable. It relies on the income tax slab rate of the retiree.
Life Expectancy Rate
No one can predict how long an individual's life will be. Therefore, while buying a certain pension plan make sure that the retirement fund is adequate to back your financial requirements during your old age.
7 Best Retirement Plans in India
Are you looking for a pension plan that would take care of all your needs after your retirement? Here are India's seven best retirement pension plans to help you make informed decisions.
1. LIC Jeevan Akshay
LIC Jeevan Akshay is one of the promising pension plans available in India. This is an immediate retirement plan that enables you to purchase it by paying just one premium lump sum amount. This pension plan is the best for anyone who wants an immediate annuity. You will start getting the benefits as soon as you purchase the plan.
- The LIC Jeevan Akshay plan provides annuity payments in many frequencies. This can be monthly, quarterly, half-yearly, and annually.
- No maximum limit for purchasing it.
- You can be eligible for tax exemption for the premium you pay.
- The minimum amount to buy this plan is Rs 1 lakhs for offline distribution channels. It is 1.5 lakhs for online distribution channels.
- You do not need to undergo a medical test to purchase this policy.
- You can purchase this policy at a minimum age of 30 years and a maximum of 85 years.
- Age proof is mandatory.
2. Public Provident Fund (PPF)
The Public Provident Fund (PPF) is offered by the Indian Government. It is not restricted to a certain bank. Every bank gives the same benefit while opening a Public Provident Fund account. The rate of interest is also decided by the Indian government.
Also Read: Invest in PPF - 8 reasons you should know about
It is a retirement savings scheme that is initiated to provide a secure life to everyone regarding post-retirement. The least amount of deposit a financial year can be as low as Rs. 500. It can be up to Rs. 1.5 lakh. The benefits of PPF are:
- The returns are risk-free. This is because it is not dependent on market volatility.
- Compounded interest rate (Currently 7.1%). PPF offers annual compounding of interest.
- The investment every year can be Rs.500
- The person is eligible to get partial withdrawal from faculty from the seventh year onwards.
- The opening balance of the account can be as minimum as Rs100.
- It is an investment of a minimum of 15 years and can be extended in blocks of 5 years (according to the investor's choice).
- Tax saving benefits: Up to Rs1.5 lakh is free from income tax under the 80C IT Act.
3. NPS/ National Pension System
The National Pension System is a voluntary retirement saving scheme to allows subscribers to make decisions regarding their retirement and future. It is aimed at inculcating the method of saving for post-retirement time. It is looked after by the PFRDA (Pension Fund Regulatory and Development Authority).
NPS has two types of accounts, Tier-1, and Tier-2. Tier 1 is the pension account that has restricted withdrawals. Tier 2 is a voluntary account. It delivers liquidity for investments and withdrawals. Tier 2 is allowed only in the case of the subscriber having an active Tier 1 account.
The National Pension Scheme is not only an investment plan, but also it offers a couple of tax benefits. Up to 2 lakh can be saved from income tax during a financial year. This includes a deduction of 1.5 lakh under 80c and an additional 50k under 80CC1(B).
During exit or retirement, at least 40% of the corpus is compulsorily used to procure a pension for life by buying an annuity from a Life insurance company. The balance corpus is paid as a lump sum.
Benefits of NPS:
- A beneficiary can deposit money at any time in a Financial Year. He/she can also deposit according to their convenience. The amount they wish to have every year depends on them.
- It is highly flexible. The beneficiary can select their own investment options and pension funds to make their money grow as they want.
Recommended: NPS Withdrawal Rules - Premature Exit Rules
4. Jeevan Shanti Scheme from LICI
The LIC Jeevan Shanti Plan is a single premium annuity plan. Typically, an annuity plan offers a periodic and systematic payout for a certain period with a lump sum investment. It provides an option between a joint life deferred annuity and a single life deferred annuity. The LIC Jeevan Shanti can be utilized to obtain fixed payouts at regular intervals for the rest of their life.
A subscriber needs to pay a purchase price to buy an annuity. This is the Single premium price. LIC then pays a fixed price at regular intervals. The regular payout can be monthly, quarterly, or half-yearly.
- The annuity payments are flexible
- The nominee gets the death benefit
- If the person is handicapped, the investment is reduced
- The maximum age to invest in this retirement plan is 79 years.
- The policy can be surrendered within three months of purchase.
5. ELSS Mutual Funds
It is an Equity Linked Saving Scheme. It comes under the category of mutual funds. Their major exposure is in equity-oriented securities. If you want to invest 60,000 in an ELSS, this 60,000 can be reduced from the taxable income under 80C. This will ultimately reduce the tax burden on the person. The lock-in period is 3 years. After the lock-in period is completed, the units can be easily switched or redeemed.
- Any person or HUF can invest in an Equity-linked saving scheme. The investor should have a good understanding of the market. Investment by a newbie can be unmanageable without good knowledge of the market.
- It comes with a dividend and growth option.
- People can invest through SIP (Systematic Investment Plan)
- The Equity Linked savings scheme provides benefits of tax savings and capital appreciation. You can get a tax benefit of Rs 1,50,000 every year. However, the returns from this scheme are taxable. The earnings are taxed at 10% of the gain.
- ELSS mutual funds come with a lock-in period of 3 years. This is the least of all 80C options.
- It has the potential to give much higher returns than other NPS or Public Provident Fund.
- It reduces the tax burden.
6. HDFC Life Pension Guaranteed Plan
The HDFC Life Pension plan gives market-linked returns and loyalty add-ons. This makes it very easy to fulfill retirement goals. This plan enables the insured to manage funds in the long term so that they can enjoy a financially secure life.
- It comes with many annuity options to fulfill the customer's needs
- You can opt for the plan on a single or joint life basis.
- Option to obtain annuity monthly, quarterly, half-yearly, or yearly.
- It gives guaranteed vesting benefits with more market gains.
- It also comes with death benefits to the beneficiary.
- It also comes with tax benefits (under Section 80C of the Income Tax Act, 1961.) Up to one-third of the benefits can be taken as tax-free commuted value (according to 10(10A) of the Income Tax Act, 1961.) The remaining amount (or the full amount) can be used to purchase a life annuity from the bank at the annual rates of that time.
- The beneficiary enjoys loyalty additions from the 11th policy year. It is given in every alternate year.
- The minimum required age is 18 years. The maturity age is 45 years.
- This plan has a limited and single premium payment option.
7. Pradhan Mantri Vaya Vandana Yojana (PMVVY)
Pradhan Mantri Vaya Vandana Yojana (PMVVY) is a very famous fixed-income scheme for senior citizens of India for 10 years. This one-time deposit scheme was brought forward by the Indian government for people aged 60 years and above. However, personnel with voluntary retirement within the age bracket of 55 to 60 can also invest in the PMVVY scheme. The VRS option is only applicable to the Government or PSU sector employees. It can be bought, both online and offline through LICI (Life Insurance Corporation of India). The objective of PMVVY is to give senior citizens a regular pension during times of the drop in interest rates.
- The minimum age is 60
- There is no maximum age limit
- The duration of PMVVY is ten years.
- PMVVY is flexible in choosing payout frequency. Currently, the scheme offers monthly, quarterly, half-yearly, and yearly payout options.
- The rate of return applicable is 7-9% which is revised by the government every year.
- The pensioner will get an assured pension of 7.4% p.a for PMVVY policy monthly for the financial year 2021-2022. This interest rate is applicable for people who invested in the PMVVY yojana till 31st March 2022.
- The least pension provided under the Pradhan Mantri Vaya Vandana Yojana is:
- Rs. 1,000 per month.
- Rs. 3,000 per quarter.
- Rs. 6,000 per half-year.
- Rs.12,000 per year.
- The maximum pension provided under the Pradhan Mantri Vaya Vandana Yojana is:
- Rs. 9,250 per month.
- Rs. 27,750 per quarter.
- Rs. 55,500 per half-year.
- Rs. 1,11,000 per year.
- The purchase price cannot go beyond Rs. 15 lakh.
- The PMVVY allows a premature withdrawal during the term of policy under rare situations. It can be a case where the pensioners need money for the treatment of a disease for their spouse or self. The pensioner will get 98% of the purchase amount in such cases.
Conclusion
These are a few best retirement plans that you could think of investing in India. You can choose as per your requirements to protect your future. This is more important because financial independence, even after retirement, is the biggest reward you can give yourself after years of hard work. Stay prepared and welcome your golden age without any financial stress.
Disclaimer: The visitors are informed that this blog is written for information purposes. It is not investment advice. We only tend to provide unbiased information gathered from authentic websites and sources.