What Are The 4 Types of Retirement Plans
Updated On Aug 09, 2021
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Retirement plans have become a critical component of a person's long-term financial planning. People begin considering the best approach to protect their retirement phase as soon as they have a well-paying work or when their family grows with the addition of children. This is logical, given that by the time their children reach that age, they will have learned to stand on their own and will have set out to find their place in the world.
What is A Retirement Plan?
Retirement plans, also known as pension plans, are investment plans in which people put aside a portion of their savings/salary and allow it to accumulate over time so that when they are ready to retire, they have enough money saved to use as income. Having a retirement plan is never a bad thing, regardless of whether someone earns a high salary or has already saved a significant amount of money.
Savings are frequently depleted during an emergency, which can be disastrous for someone without a pension plan. This is why selecting the proper, and finest, retirement plan serves as a reliable source of income once one has retired from the workforce. It's important to remember that contributing to a pension plan allows the amount to grow at a significant rate, which can make a significant difference in the final total. Simply put, having a pension plan allows you to plan your retirement in a systematic and time-efficient manner.
What Are The 4 Types of Retirement Plans?
There are many different pension plans available on the market, which can make deciding on the best option difficult. However, once this process is completed, many of the problems that arise later in life can be avoided. For individuals who may be looking for a pension plan in the near future, these are the four most commonly used types:
1. Immediate Annuity Retirement Plans
These plans are appropriate for people who put off planning for retirement until the last minute. The immediate annuity plan requires a large sum payment in exchange for annuities that begin immediately. If the individual on whom the plan is based dies, the person named by the deceased will receive the funds owed to them.
2. Deferred Annuity Retirement Plans
A plan in which a person accumulates a retirement fund over time in order to enjoy the fruits of their effort once they have left the workforce. This strategy also has the virtue of offering tax advantages. A customer can choose to pay their premium over the course of the policy term or for a set amount of time under this plan. Once the building phase is completed, the person will get continuous income until his or her death.
3. With and Without The Life Cover
The total sum guaranteed to the policyholder's nominee in the event of the latter's untimely death during the accumulation term is known as a pension plan with life cover. This is where the most deferred annuities are found. When a pension plan does not include life insurance, the nominee does not get a lump sum payment upon the policyholder's death, but the money accumulated is returned.
4. Traditional and Unit-Linked Pension Plans
These are investment strategies in which a person invests his or her money in assets based on his or her risk tolerance. Traditional and unit-linked plans are the two sorts of mentioned plans. While the former involves primarily investing in government assets, the latter involves stock, bond, and equity investments.
Keep a good investing portfolio. Please ensure your portfolio has enough traditional assets to cover three to five years of living expenses. During a market downturn, even a well-diversified and up-to-date portfolio can be momentarily derailed. The last thing you want to do is sell your stocks after they have lost 20 to 30% of their value. Buying low and selling high is the polar opposite of this strategy. The traditional portion of your portfolio must act as a bridge to help you get through the period while your more aggressive assets are being recovered.
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.