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What are Retirement Plans? How Do They Work?

Published On Mar 12, 2021, Updated On Apr 22, 2021

To ensure that you enjoy a financially stable life after your retirement, it is important to start saving for your golden years as early as possible. Luckily, there are various kinds of pension funds available in India. Although the overall aim of these pension plans is to help you live your life independently and comfortably after retirement.

What Is A Retirement Plan?

Retirement plans or pension plans are a type of investment cum life insurance plans which are specially designed to help you meet your financial requirements after your retirement. usually have several incentives, such as health cover and retirement. These plans provide you a steady pension flow on a monthly, quarterly, semi-yearly or yearly basis. Some of the plans also offer a lump sum maturity amount on retirement. These plans also provide you a life cover to help your family remain financially stable in case of your unfortunate demise during the policy term.

Also Read:- Best Term Insurance Plans for Senior Citizens

Why Should You Buy A Retirement Plan?

It is necessary, at an early age, to start saving in a pension scheme in order to remain financially independent after your retirement. These plans help you create a significant copus for yourself by offering you the benefits of power of compounding. These plans generally feature a policy tenure of 30-40 years, this would mean that you have the right corpus for yourself to finance your holiday trips or entrepreneurial dreams during the golden years of your life. These plans also enable you to maintain your lifestyle and standard of living even in the absence of a regular flow of income.

How Do Retirement Plans Work?

Let us attempt to explain the workings of the retirement plans with the help of an example -

Let's say you're 32 years old and you're making Rs 50,000 a month. If your estimated lifetime is called 80 years and you want to retire at 60 years. How much do you think you need to spend every month before you retire to earn a monthly income of Rs 50,000 after retirement?

If inflation is deemed at 6%, you would need a corpus of around Rs 7.15 Lakh to earn a monthly income of Rs 50,000 after retirement. If you start saving in the Unit-Linked Pension Plan now and if your return is considered to be 12% by the age of 60 and now, after retirement at 5%, you need to start saving about Rs 26,000 per month to meet the mark.

If all is left as it is and you start saving at 30, the monthly contribution will fall to about Rs 20,000. This is how early investment in a pension scheme is advantageous. In addition, if manual measurements are overwhelming, you will also find your monthly investment amount by pension calculator on-line.

You May Also Like To Read:- Benefits of Purchasing Retirement Plans

Monthly Income Plans for Senior Citizens


The advantages of the pension plans and their function varies somewhat depending on the kind of scheme you select. In order to make the correct decision, it is important to fully consider the benefits and function of the various plans.

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