How Can You Use Retirement Plans In Different Ways?

Retirement plans are specific investment plans that allow an individual to save money for their retirement in a systematic and disciplined manner. An individual can contribute a certain amount of money to their respective plan on a regular basis, so that by the time one retires, the plan will have an established decent fund.

Retirement plans often include the double benefit of asset accumulation and insurance coverage. Therefore, it is important for an individual to understand the way a pension system works in order to calculate the suitable investment amount, and the same holds true for retirement plans. The primary purpose of a pension plan is to replace a source of income. As a result, it must be enough to meet future financial needs. To understand more on the usage of retirement plans, read on.

Different Uses Of Retirement Plans

Following are some listed uses of retirement plans -

1. Phase of Accumulation

An individual has the option of paying a single payment or making regular contributions. In any case, the money provided will increase over time to become a substantial corpus. This is the stage of an insured individual’s retirement plan when they start accumulating their assets. For example, the cumulative time in our scenario would be 28 years.

2. Importance of Time

An individual’s money will be invested further to create the best risk-adjusted returns possible. It is suggested that an individual should purchase a retirement plan as soon as possible so that they may take advantage of the power of compounding to boost their plan's return potential.

3. Age of Possession

This is the age at which an individual begins to get their pension, i.e., 60 years old.

4. Pay-out Period

This is the time frame in which an individual gets their pension payments once they have retired. In this scenario, an individual intends to get their pension between the ages of 60 and 80, with a 20-year payment term. The annuity phase is another name for this stage. However, depending on the plan an insured individual chooses, they may be able to take a partial or whole withdrawal during the accumulation phase.

Types Of Retirement Plans

1. Annuity Plans

These are specially designed retirement plans that can give an individual guaranteed income for the rest of their life or for a certain length of time during their retirement. An insured individual can utilise an annuity plan to build a retirement fund from which they can get a regular income, known as an annuity or pension, after they reach a specified age.

An annuity plan can safeguard an insured individual from outliving their resources as it ensures a fixed income. More significantly, because the payout is guaranteed for life, the insured individual won't have to worry about reinvestment risk.

2. Unit Linked Insurance Plans (ULIPs)

These plans provide an individual with the added advantage of insurance coverage as well as the potential for investment rewards.

The nice thing about ULIPs is that an individual may pick the sort of investment that best suits their risk profile and return requirements. It might be an excellent way to create long-term returns while also benefiting from insurance cover. The type of ULIP an individual chooses depends on their specific needs, such as the quantity of coverage and returns one desires.

3. National Pension Scheme (NPS)

This is a voluntary retirement plan that may be quite helpful in assisting an individual in accumulating the retirement funds that they desire. It is open to all nationals of India between the ages of 18 and 65. Furthermore, an individual can establish an NPS at the age of 60 and contribute until they reach the age of 70. When an individual reaches the age of 60, they can withdraw 60 percent of their retirement savings all at once or in instalments.

Endnotes

Thus, it's never too soon to begin thinking about one’s retirement. In fact, if an individual starts planning for their retirement early on, they will place themselves in a decent position. Once an individual has started, they should stick to their plan and keep investing for their retirement. This is where retirement plans help, as they not only help one build the wealth they want, but also inculcate financial discipline at the same time.

You may also like to read - Mistakes You Must Avoid While Purchasing A Retirement Plan

Disclaimer: This article is issued in the general public interest and meant for general information purposes only. Readers are advised not to rely on the contents of the article as conclusive in nature and should research further or consult an expert in this regard.