• Start early:
You may just be in your twenties or your thirties now and feel that retirement is a long way off. But time literally flies and before you know it, you will be standing at the threshold of your retired life. It is therefore a very good idea to start investing in a pension plan as early on in life as possible. You can then build up a large corpus over a period of time by making small contributions. This won't stretch your finances and will make your pension fund nice and plump. You will also have more choices and be able to pick a plan from a larger pool of options. So definitely start saving as soon as possible.
• Inflation protection:
When you choose a pension plan, make sure you take the inflation factor into consideration. You have to buy a pension plan that would compound your money in such a way that down the line you get the adequate returns. When you retire, things will be a lot pricier than they are now and the returns from the plan should cover the costs comfortably. Keep this very important point in mind when choosing the pension plan.
• Diversity of the pension plan:
The objective of buying a pension plan is to build up a corpus and stay financially secured after your regular income stops. It is therefore, important to choose a pension plan that invests your money in a diverse manner. This would help your investment to grow in a steady and good healthy way and also balance out the risks. So opt for a pension plan that invests the money over various tools such as equities and mutual funds well as government securities and bank deposits.
• Payment period:
The different pension plans have different payment periods. This refers to the duration for which the insurer pays the pension to the policyholder. While some plans have a limited payout period, others have a lifelong payout term. It is highly advisable to opt for a pension plan that offers a lifelong payout. You may have other sources of income (rent from a property, employer's pension, etc) or savings but you never know when that income can stop. This is why it is important to have a lifelong guaranteed source of income from a pension plan.
• Choose the right kind of plan:
And finally, we come to the most important factor – the type of annuity. You can choose an immediate annuity plan or a deferred annuity plan. They work like this:
- Deferred annuity plan: In a deferred annuity plan, you build up a corpus over a period of time, may be even twenty or thirty years. Once you retire, your contribution stops and regular pensions are paid to replace your income.
- Immediate annuity plan: An immediate annuity plan gives you the option to invest a lump sum amount of money into the pension plan and start the payouts right away. This is a good option if you haven't planned for your retirement but have large retirement bonuses or any such earnings at your disposal.
Choose the correct type of pension plan after taking your age, your financial resources and your retirement goals into consideration.