A Short Guide On Choosing The Best Pension Plan
02 Feb, 2018
A pension plan is a type of life insurance plan that offers a financial cushion in your retirement years.
You must choose a pension plan wisely to ensure you get the best out of it. Take a look at the list of factors you must consider while buying a pension plan listed below and you will surely be able to make a good decision.
Factors to choose the best pension plan
Here are the important factors for you to consider before you buy a pension plan:
- Begin early: As a twenty something year old, you may feel retirement is another lifetime away! But time flies and before you realize, you may soon approach your retirement years. It is therefore wise for you to begin early and build up a large corpus over a long period of time. You can make small contributions to your pension plan if you start early. You will also get the advantage of compounded interests.
- Cover the inflation: Your retirement may be 30 years away from now. So it is important that you keep the factor of inflation in mind when you start investing in a pension plan. The pension plan you choose should cover the inflation at the time of your retirement. Something that costs Rs.10 now may very well cost Rs.50 in another three decades. It is therefore vital for you to take the point of inflation into account when buying a pension plan.
- Diverse investments: All pension plans invest your money in various financial tools. You have to be careful and choose a pension plan that diversifies the investment. The funds of investment must be varied and should distribute the risks evenly. While a part of the money can be invested in safe financial tools such as bonds and certificates, another part must be invested in stocks and equities. It is thus important to choose the pension plan carefully as only the right investments can fetch you the highest retirement benefits.
- Tenure of payment: The next factor that you must consider when choosing a pension plan is the tenure of payment. This refers to the actual period of the pension after your retirement. Some plans have a fixed number of years for which the pension is paid and then the policy terminates. Others pay you throughout the duration of your life. Assess the payout terms and see which one you feel is best suited for you.
- Type of annuity: When buying a pension plan, you have to choose between an immediate annuity plan and a deferred annuity plan. An immediate annuity plan allows you to invest a lump sum amount of money and the pension pay out begins right away. This is useful if you do not have a retirement fund already in place and receive a large retirement bonus or any other large payment. The deferred annuity plan allows you to invest sums of money at regular intervals over a period of time and the pension pay out begins after you retire. You have to choose the type of annuity carefully. This would mainly depend on your age and your financial wellbeing.
- Vesting age: It is advisable that you go for a pension plan that offers a vesting age suitable as per your requirements. Some plans start with vesting age as 40. In short, if you wish to make arrangements for an early life, opt for such a pension plan. However, some insurer does offer a vesting age of 85 years. This type of plan is suitable for those who wish to retire late in life.
The bottom line
It is very important to choose the right kind of pension plan as only then can you get the correct financial support you need. Retirement is a wonderful phase in life and you must be able to enjoy it without any hiccups. Planning for your retirement is thus crucial. You have to think ahead and choose the right pension plan. This would help you build up a healthy corpus and you can continue to live life comfortably on your own terms for as long as you live.
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