Pension Plans are the best way to save for your future needs. We all worry about our lives post the retirement age. Taking an early interest in Pension planning will ensure that you are able to maintain your lifestyle after retirement. But to do this, it is important to understand pension planning and its savings, to arrive at the best pension plan for your benefit. Before choosing a pension plan, make sure that you conduct extensive research and choose the best pension plan for your retirement age.
Pension planning essentially works by saving up sums of money over the years so that you have a lump sum available at your retirement age. The best pension plan will be one which provides adequate money at Maturity to sustain your needs after the retirement age. Every pension plan has a different set of benefits and hence, offers varied advantages and disadvantages.
Advantages of Pension Planning
- The most obvious advantage of pension planning is the savings you make which will benefit you after the retirement age.
- The amount contributed from your salary towards a pension plan is considered as saving and hence, it is non-taxable.
- One of the best pension plans out there ensures that your employer adds an equal sum of money as you into the pension fund. This works as an added benefit.
- If you buy a pension plan from the market under the National Pension Scheme, it offers a wide gamut of investment options. The best pension plan is one which offers high returns now and adequate payments after maturity.
Disadvantages of Pension Planning
- Private sector pension planning involves the compulsory purchase of annuities. If these don’t offer sufficient returns, your savings may not be very beneficial.
- Pension planning is not the best backup for financial emergencies. If you withdraw money from your savings before the retirement age, the amount is taxed and there is a 10% penalty.
- If the pension planning has been done by your employer, there may be additional issues when you plan to change job as a new pension plan may be required.
- For government employees, the savings made on their pension plan each year is restricted to the PPF. Other investments may offer higher returns for the same money.
- Some pension plans may have restrictions on how much you can withdraw and how often, after the retirement age. Furthermore, in the private sector, one has to buy annuities which are bound to fluctuate in rates by the time the pension plan matures.
Choosing the Best Pension Plan
It is important to look through the advantages and disadvantages of different types of pension planning to arrive at the best pension plan for you. The savings at your retirement age will depend largely on the premiums you pay today. So it is important to ask yourself how much you afford to give towards your pension planning. The best pension plan will be one which makes optimal use of your current income to provide for you after your retirement age.
In the private sector, the government’s National Pension Scheme is a pension plan for all citizens, including those who work in the private sector. But this pension planning also involves buying annuity insurance from an insurance company. To get the best pension plan, one needs to compare the benefits offered by different annuity plans in the market. Will you get returns on the savings and how much are they? Do you get paid back through your lifetime or only after passing your retirement age?
At the end of the day, pension planning is all about removing the stress of how you will sustain yourself after the retirement age. A plan which is able to provide regular and adequate income after the retirement age is, thus, the best pension plan. At the same time, it is always wise to see how your savings can further enhance your finances today. With such considerations, it is likely that you are able to find the best pension plan in the market for you!