Planning your retirement well in advance is highly important. Choose the right pension scheme for yourself even before your earnings stop. These plans will be extremely beneficial to fund your and your children’s expenses after you have retired. For planning your child’s future, child education plan is important plan. Similarly, a pension plan is one of the best investment plan to manage the finances in your retirement life. Here are 10 things you should know about pension plans:

1. What comprises a pension plan?

In typical cases, the plan works in 2 phases.  The first phase is known as accumulation phase while the second phase is known as annuity phase.

2. What is accumulation phase?

You will initiate your pension plan with the accumulation phase. This phase continues till the time, you retire. You will be paying premiums in this phase that will be invested. You will also enjoy tax benefit for these premiums under Sections 80C/80CCC. At the time of your retirement, you are eligible to withdraw 1/3^rd amount of your accumulated corpus, tax-free.

3. What is annuity phase?

The remaining 2/3^rd of the corpus cannot be withdrawn. You will have to mandatorily buy an annuity plan with this amount. This plan will give you pension from your retirement period till your death. This pension amount is taxable and will depend on the then prevailing interest rate.

4. How does it work?

This plan is simple and easy to understand. You have to pay your premiums regularly. Failing to do this, may result into a heavy penalty. This restricts you to splurge your money on unnecessary items and enforces discipline when paying premiums.

5. What is the nature of the pension plan?

A pension plan has a highly concentrated portfolio. It is strictly meant for your retirement and is a long-term plan. It cannot serve as an investment option meant for anything except retirement.

6. Why is a pension plan necessary?

It is necessary to fund your life after retirement. With advancement in medical technologies, human’s life expectancy is increasing but his retirement age is constant. This means, we are adding up on the number of years after retirement. This makes it important to have a back up of this plan.

7. Why you should have a pension plan?

When you retire, the inflation will rise enormously. You may require a lot of money to bear your health and lifestyle expenses. An efficient plan will also help you to accomplish your holiday and other desires of life, along with the necessities.

8. What are the benefits of a pension plan?

With these plans, you enjoy many benefits like flexibility to choose your tenure period, hassle-free transaction, de-risking from market volatility, etc.

9. How does National Pension Scheme (NPS) benefit?

NPS offers options to choose service providers, fund managers, investment schemes and the flexibility to switch amongst these. NPS account is portable and has an online platform that offers subscribers to access their account anytime. NPS also provides additional tax savings.

10. How to calculate your pension requirement?

You will have to take an estimate of your monthly expenses and calculate the amount required on the basis of the inflation rate and number of years left for you to be retired. With the amount derived, you may calculate the savings required every month. To ease your work, you may use an online pension calculator.

These points make it clear, that it is extremely vital to have a pension plan for yourself and secure your retirement life. Fulfill all your dreams with the help of these plans.