Deciding on the right pension plan is an important step in one’s life. It is an important step in your life today and in the future. It is essentially like deciding how you’re going to live in your retirement and what kind of savings are you willing to make today for it. For this reason, most households in India have a high priority on saving for a pension. It is sometimes so important that people choose a job based on the pension scheme being offered.
There are a few things to keep in mind when it comes to investing in a pension plan. One of these is to start early. It is important to start with a goal in mind and reap the benefits of compounding. Also, it is important to consider that you will need to contribute more money to other things in life. Even with that, you will need to contribute to your pension in order to maintain a comfortable lifestyle later on. To know the premium you have to pay you can use any retirement calculator available online.
Additionally, it is essential to consider the various assets that can be used to invest in a variety of ways. Some of these include bonds, gold, and fixed deposits. It is widely believed that the PPF and EPF are the only things you need to make your retirement a smooth ride. However, this is not the case.
Here are few of the criteria that you should have in mind while selecting a pension plan:
- The plan should allow you to systematically save for a long amount of time
The whole point of having pension is that you have to prepare for your retirement. More precisely, you have to prepare for the monetary part of your retirement. The money that you need to be stress-free and have a nice retirement needs to be collected starting today. The amount you’d need could take decades to accumulate. Hence, you have to start early in your life and then save for a longer time. Your pension plan should offer you such a tenure that gives your investments enough time to grow into a huge corpus.
- The plan should offer you flexibility on selecting your vesting age
The vesting age is an important concept in pension plans. It is essentially the age that you decide to hang up your coat and retire. However, there can be a huge difference in what your pension plan considers to be your retirement age and what your actual age of retirement is. If your vesting age is earlier than your retirement age, you end up missing a few years of enjoying your pension plan without any stress. In the opposite case, you end up spending a few years without any income or pension. Hence, you should know what age you want to retire and your plan should give you the flexibility of choosing that vesting age.
- The plan should allow you to balance equity and debt investment
So far, you know that a pension plan makes sure that you have enough money in your retirement. However, in addition to the savings element of the plan, it also uses investment components to grow your fund as much as it can. These investment components involve putting your money into market instruments. However, any aspiring investor knows that to have a higher chance of great returns, you have to diversify your investment portfolio. Hence, it is important that you know the various investment instruments available to you. The most popular investments instruments are equity and debt funds. Hence, you should look to invest in both. More importantly, your pension plan should allow you to do that.
It is important that you maintain a consistent savings rate in order to maximize your retirement income. Ideally, you should aim to increase your savings every year in a systematic manner. This way, you are putting more money into your pension plan each year to be compounded and give higher returns.