Retirement is an inevitable part of life. As you grow old, you may not have the physical strength to do the job as efficiently you did when you were young, and eventually you must stop working. Besides, if you are a salaried employ, you must retire at the age of 60; it is a statutory requirement.
Retirement can last up to 30 years or more, and thus having a decent corpus to meet your regular and medical expenses is a must. But, as you retire, it is natural that you won’t have a steady income source. So, to ensure that you remain financially independent in your post-retirement life, you must think about retirement planning while you are working.
Saving a specific amount towards retirement is a wise financial strategy. While you may invest in various schemes to accomplish your long-term goals, one of the objectives of financial planning must be to create a handsome corpus for the retirement. This is where retirement savings plans play a critical role.
A retirement savings plan is essentially an investment scheme that is specifically designed to help you get a steady source of income during your old age when you don’t have a regular income source. There are many savings plans available in the market that offer amazing benefits. However, there are some risk factors too. So, let us look at the pros and cons of investing in these plans.
Pros of retirement savings plans
- Long-term savings
Retirement savings plans serve as the long-term saving plan irrespective of whether you opt for a lumpsum payment or monthly payment option. The savings are assured and allow you to create an annuity which can be further invested to get a steady income flow post-retirement.
- Investment choice
The retirement savings plans not only help you save for the future and get income in your old age, but depending on the scheme you choose, you can invest the money further in different assets to suit your risk profile and get higher returns.
- Helps beat inflation
Over the past few years, the inflation has been rising every year. In such a situation, it is vital that your investment schemes provide inflation-adjusted returns so that you can meet your regular expenses during the old age without depending on anyone.
Some of the retirement savings plan allow you to purchase additional coverage options known as riders to get protections against specific risks like accidental death, etc. Thus, these plans give you an additional safety cushion.
- Tax Benefits
Most of the savings plans allow you to get attractive tax benefits. So, while you strive hard to build a corpus for the future, you can also enjoy valuable savings during your working life.
Cons of retirement savings plans
- Returns-risk are inversely proportional
The retirement saving plans that are subject to market fluctuations carry higher risks. But, they also deliver higher returns than the traditional investment options like bank FDs. So, choosing the right investment plan can be challenging.
- Annuity taxation
When you receive the annuity after retirement, the amount you receive may be taxable as per your regular tax slab. And, the last thing you want in your post-retirement is to pay taxes, which can take away a significant portion of the corpus that you can otherwise take away.
Thus, retirement savings plan has both pros and cons but still it is advisable to invest in these plans and start thinking about retirement from an early age. This will give you the best chance to create a handsome corpus for the future.