Lived your entire life proudly spending on everything you wished for? But things will change as you grow older, especially at a time when you don’t have the same kind of sources of income and spending liberty that you are living with today. This is what brings into focus the importance of using a pension plan calculator, especially in a country like India, which is seeing a rise in the elderly population.
According to a surprising report by HSBC, around 47 percent of the Indian population, one percent higher than the global average, are not saving for their retirement. In fact, 21 percent of the working population has not started saving at all, and an alarming 44% who have started saving, stopped in between due to some difficulty they faced in life.
These figures were revealed following an online survey conducted by Ipsos MORI in 2015, across 17 countries and territories worldwide, including Argentina, Malaysia, Mexico, Hong Kong, India, Indonesia, Singapore, Australia, Brazil, Canada, China, Egypt, France, Taiwan, United Arab Emirates, United Kingdom and United States.
A pension plan is a retirement policy in India, through which your investment becomes a part of a pool of funds that is looked after by a fund manager, who chooses the best instruments, such as stock market funds, to invest the money in, so that you can reap returns. It is the earnings on those investments from which policy holder’s income is generated upon retirement. You can use a pension plan calculator, which is an online tool, to determine the monthly amount you need to invest towards the retirement plan to sustain your preferred standard of living.
There are two types of pension plans in India, one are the traditional one, that will invest your money in ultra-safe government securities, then there are ULIPs, which other than government securities, will invest your money in the riskier debts and equities, significantly increasing the returns.
This way, if you start early, you can build a large corpus by the time you retire. This money will be sufficient to take care of all your monetary needs to maintain the lifestyle you are already living.
Benefits of Buying a Pension Policy
- Various Options: The financial needs and goals of every individual is different. When choosing pension plans, you’ll be offered numerous options to choose from, based on the number of dependents you have, your age and more. If you opt for a deferred annuity plan, you delay your payouts and allow your corpus to stay invested for some time to earn more interest. However, you can also make a lumpsum payment in an annuity plan and start receiving payments immediately.
- Long Term Savings: As discussed above, pension plans work by creating an annuity. The money is invested in stocks to generate steady cash flow, which becomes your income source, post retirement. Pension plans give you the opportunity to choose from making multiple payments or one payment at a time. No matter what you choose, you can be assured of long term savings.
- Prepares You for Inflation: There are pension plans in which you are provided with a maximum of one-third of the corpus accumulated at the time of retirement, and the rest remains invested. You can utilize this remaining two-thirds for recurring expenses in future.
The rising cost of living in India, along with the increasing life expectancy, has made retirement planning using a pension plan calculator essential for every citizen.