Who doesn’t wish to retire after years of hard work Everyone looks forward to a relaxed life with regular income in the form of pension. Now the question arises, how will you ensure you receive your hard-earned investment systematically to meet your long-term retirement needs Planning for retirement is something that everyone thinks about at some time in their life. This article guides you in understanding how a monthly pension plan can work in your favour.
About Pension Plans Pension plans are insurance cum investment plans that act as retirement plans and allow you to accumulate your savings so that you receive a steady income after retirement. You pay regular premiums to the insurance company and build a corpus over a period. At the time of maturity, your insurer pays back the accumulated amount to you in the form of monthly income. So in a specific plan, in case of unfortunate demise of the insured person, the beneficiary will get the sum assured with the bonuses if any. Continuously investing in a specific pension plan multiplies your savings with the right compounding effect. Thus, you would end up accumulating a considerable amount by the time you plan to let your job or business take a backseat. Why Is It Needed? While you’re young, savings tend to get exhausted quickly keeping in mind your daily expenses. Having a pension scheme helps you secure your cash flow so that you can fulfil your daily requirements even once you retire. Another advantage is that it enforces discipline. Skipping premiums can be costly, so with a pension plan, you would try to make all payments and thus ensure compulsory savings. Working of Pension Plans When it comes to pension plans, you have to undergo the accumulation phase, from when you buy the policy till the date of maturity. As and when you pay the premiums, your money is suitably invested. One advantage that you get here is that under Sections 80C of Income Tax Act, your premiums are qualified for tax benefit. As per the law, you can withdraw 1/3rd of the accrued corpus amount, and this is tax-free. Since it is a pension plan, you aren’t allowed to withdraw the balance amount. This balance amount is then used for buying an annuity plan. It is compulsory to purchase the annuity plan, which is 2/3rd the accumulated corpus that acts as a source of regular pension until your demise. The pension amount you receive is subject to the usual interest rates and is taxable.
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April 2022
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