It is the innate desire for everyone to live a secure and financially independent retirement life. Investing in a good retirement plan can help you accomplish this. Read on to know more about the importance of a pension plan.
Who does not like to be financially independent in the post-retirement phase? But, not everyone can live the life they always dream of. Dwindling income can lead to financial hardship, especially if you don’t have sufficient savings. To avoid this situation and live a happy and secure life, it is paramount that you start investing in a retirement plan from an early age.
Today, many investment plans in the market cater to people’s different needs. A small and regular investment throughout the working years can help you build a significant corpus, which you can use during the retirement years through a monthly pension. Depending on the type of pension plan you have, it also offers a death benefit in the event of your unfortunate demise. The amount can be useful to the family members to take care of their expenses even in your absence.
Typically, a retirement plan consists of two phases – the accumulation phase and the distribution phase. As the name suggests, the first phase is when you pay the premium to build a corpus. The distribution phase starts after you retire from the duty or reach the retirement age (as suggested in the policy document) and use the accumulated corpus.
If you are still deliberating whether you must purchase a pension or not, here are four compelling reasons that make it a must-have.
- Helps develop the habit of regular saving
A retirement plan is a long-term investment plan that allows you to accumulate a corpus that you can use during the post-retirement phase. But, to build a corpus and draw income, you must regularly pay the premium to keep the plan active. Regular investment in the form of a premium ensures that you save the necessary amount to give yourself a worry-free retirement life. The earlier you start saving, the larger the corpus you can build.
- Get gains with compounding effect
One of the major reasons why many people prefer investing in pension plans rather than the traditional investment options like the FD (fixed deposit) or savings bank account is that it provides returns with compounding effect. Compounding implies generating earnings from your previous earnings, which means you gain interest on the interest. The longer you stay invested, you can build a bigger corpus with the power of compounding.
- Tax Benefits
Apart from offering your regular income and securing your future, investments in a pension plan can help you get tax benefits and reduce your tax liability. Some of the pension plans provide tax benefits under Section 80C of the Indian Income Tax Act. Also, the death benefits your family may receive are subject to tax exemption.
- Ensures protection to your loved ones
If you are the only earning member in your family and have dependents, then your sudden and unfortunate demise can have a huge impact on your family financially. The insurance component of the retirement plan allows you to protect your loved ones’ financial future even when you are not around. In the event of your death, the nominee will receive the death benefit and the accrued corpus.
The best retirement plans give you the flexibility and valuable returns to build a significant retirement fund to live a financially independent life. Make sure that you compare the different pension plans, in terms of features, benefits, returns offered, and premium payments and choose the one that best suits your needs and financial goals.