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4 Types of Retirement Plans and Employer-Sponsored Plans

By archana singh

Retirement plans have become an important part of a person’s future planning. Right from the time, someone gets a well-paying job, or when the family expands with the addition of children, people start planning the best way to secure their retirement phase.

This is understandable considering that by the time they reach that stage, their children have become old enough to stand on their own feet and will have most probably set out to find their place in the world.

Want Is A Retirement Plan? Why Is It Needed?

Also known as pension plans, retirement plans are investment plans whereby people put together a part of their savings/salary and let them accumulate over the years so that by the time they are ready to retire, they have enough money saved to be used as income during retirement. It doesn’t matter whether someone enjoys a high salary or that he/she already has saved quite a lot, having a retirement plan is never a bad thing.

Many times, savings get used up during an emergency, and for a person without any kind of pension plan, that could be a hit. This is why choosing the right, and the best, retirement plan acts as a steady source of income when one is done with work life. One has to remember that investing in a pension plan helps the amount grow at a substantial rate, and that can make a big difference in the final count. In simple terms, having a pension plan lets you plan your retirement in a systematic manner, and with time to spare.

What is to be remembered is that in many cases, it is the responsibility of employers to aid to make sure individuals working them are able to get a retirement plan up and running so that their financial future is secure, while also ensuring they are protected from any emergencies post-retirement. Nowadays, pension plans have become synonymous with senior citizens, as it also helps children take care of their parents during their old age.

Some Retirement Plans in India

There are a variety of pension plans to choose from in the market, and this could make choosing the best option tough. But once this process has been taken care of, a lot of the troubles that come later on in life can be avoided. Here’s a look at the four most widely-used types of pension plans for those who could be looking out for one in the near future:

  1. Immediate Annuity
    These plans are best suited for those who began their retirement plans at the last moment. The immediate annuity plan sees a person pay a lump sum in return for their annuities starting immediately. If the person on whom the plan is made does pass away, the person nominated by the deceased will get receive money due.
  2. Deferred Annuity
    A scheme where a person builds his/her retirement corpus over the years, so as to enjoy the fruits of their labor post-work life. This plan also has the advantage of providing tax benefits. Under this plan, a person can either pay their premium over the length of a policy term or for a limited period. Once the building up phase is over, regular income comes into the persons pocket until his/her death.
  3. With and without  life cover
    A pension plan with life cover is the total amount that is guaranteed to the nominee of the policyholder in case of the latters’ untimely demise during the accumulation period. The most deferred annuity’s come under this category. Under pension plans without life cover, the nominee is not repaid any lump sum upon the death of the policyholder, but whatever amount has been accumulated will be given back.
  4. Traditional and Unit-Linked pension plans
    These are kind of investment plans where a person puts his/her money on securities, depending on his/her risk appetite. The two types of said plans are traditional and unit-linked. While the former involved investing mostly in government securities, the latter sees investment in stocks, bonds, and equities.

A Look At Some Of The Best Retirement Plans In Our Country

  1. LIC Jeevan Nidhi Plan
  2. SBI Life Saral Pension Plan
  3. HDFC Life Click2Retire
  4. ICICI Pru-Easy Retirement
  5. Bajaj Allianz-Pension Guarantee
  6. Birla Sun Life Wealth Secure
  7. Max Life FYPP

What Are Employer-Sponsored Plans?

An employer-sponsored plan is a kind of plan for the benefit of employees that is provided to them by the employers at less or no cost to the latter. Participating employees will get discounted services, while employers will benefit from the tax-deductible component of this practice.

Some of the kinds of such pension plans are:

  1. Defined benefit plans
    A company retirement plan where an employee who has retired gets a specific amount of income based on their salary history at the organization. Regular pensions and annuities come under this category.
  2. Defined contribution plans
    This is a kind of joint venture where both the employer and employee make contributions, with the final benefit depending on the amount accumulated in the account and the rate earned by investments using this account. Profit sharing, stock bonus plan, money purchase pension plan, combination plans and thrift plans are some types of arrangements that come under this category. 

Keep your cash reserves abundant. The cash reserves that are very small might leave you unprotected in the retirement. Whilst in the labour force your emergency cash reserves must be between 3 and 6 months of the living expenses. The logic behind the timeless suggestion is that, in a period of three to six months that you are preying on your savings, you will get another job.

Maintain the suitable portfolio for investment. Make sure that your portfolio is assigned to sufficient traditional assets to cover a period of three to five years of your living expenditure. You can temporarily derail even an up to par and diversified portfolio at the time of market downturn. The last thing that you would wish to do is selling off the holdings after losing 20 to 30 percent of the value. That is just the opposite of buying low and selling high. The traditional share of your portfolio must serve as a link to get you through the time that your much aggressive assets are needed to be recovered.

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