The question is simple “which is the best pension plan for me”, asked by a prospective investor who is thinking about retirement and interested in retirement planning and asking himself that how he will meet their expenses and maintaining their life styles post retirement. The question is simple but not the answer, as the investment for retirement saving plan is dependent on many factors and you cannot plan your retirement planning in isolation without considering your other financial needs .The major factors which one should consider to draw a better financial plan is given as under.
- What is your current income and expected increase year wise in future?
- How much money you can allocate for retirement saving plan after meeting your current expenses?
- How many years to your retirement?
- What will be your other Major expenses schedule pre-retirement and how you met them like Marriage, children education?
- What will be the lump sum amount or monthly pension if any expected to be received on your retirement, if you are a salaried person?
- What is the expected level of Inflation in future and expected return on your investment?
- What is the expected money required to meet your expenses and to maintain your post your retirement?
After considering all the above major factors then only you can draw your financial plan correctly and retirement planning should be a part of your overall financial plan.
We can divide major retirement plans as under.
1. Retirement annuity plan: Under this plan on retirement, person is required to deposit a Lump sump amount with a company and in return he can get fixed amount at fixed interval as fixed by him. This plan is suited to persons who is expecting to receive a large sum on their retirement which can be used to buy the annuity. You can select annuity life annuity or annuity for a specific period with or without return of purchase price.
2. Saving accumulation plan/traditional plan: This is the tradition type of investment, under which you are required to deposit premium or contribution at regular intervals on insurance company will credit bonus/interest in it , while your you are earning in pre-retirement stage and it is called as accumulation face . In such plans you may fix your vesting age yourself as per options provided by your insurance company, and on vesting age you may either get lump sump amount on maturity or you may buy annuity with this amount. These policies generally also have insurance of the person so that in case any mis-happening sum assured plus accrued bonus can be paid to the dependents. These plans are not market linked and best for persons who have a lesser risk appetite. Though everybody knows the principle of higher risk higher returns but left this decision to each person’s comfort level.
3. Plans through Employers: Other retirement plans includes plans through employers. Under these plans employer will take a policy to pay the lump-sum amount required to paid by him to the employees on their retirements. In such plan employers may contribute whole of the premium or may deduct % from employees also, all depends upon term of your employment. Same as above there is accumulation phase during pre-retirement period and lump sum amount/annuity can be received post retirement. It is generally called a group pension plans. Such plans can be taken for at least for group of 10 persons. The other benefit of such plans is that on death of employee minimum sum assured+bonus will be allowed to employee’s dependents. The benefit of the plan is that the expense costs and insurance charges are lower side. The decision of taking such plans primary vested with employers.
4. Unit-linked pension plans: Under this plan also there are two phases accumulation and withdrawal same as in traditional plan. However, unlike traditional plan, you have an option to invest in any or multiple funds out 4 to 5 funds made available by the insurance company, divided by degree of risk and return ratios. The investment in such plans is mostly suited for the persons who are planning their retirement in their early age and can actually loves to invest in more risky investment like in equities and interested in reaping the benefit of the investment by accumulation and compounding. This funds are divided in mainly in three categories Conservative (debt or liquid funds), Moderate funds (mix of debt and equity) and higher risk/return. Few companies are also providing such plans through employers also.
Hope the above post will clarify that there is no ready-made solution for retirement planning for all individual as customization is required according to needs and sources of the individual. Selection of Best Pension plan depends upon various factors as discussed above and you may select one or more plans from discussed plans according to your needs and risk appetite to achieve your retirement planning goals in best manner.