We all want a steady source of income once we retire. After all, retirement means that you will no longer be earning a fixed amount each month. Hence, there is always a need to create a secondary monthly income stream that will help you meet your daily costs and other needs without eating into your other savings and investments. How do you ensure this? By investing in a monthly pension scheme. Let us look at them briefly in this article.
What Does a Monthly Pension Scheme Entail?
A monthly pension scheme can essentially be of these types:
- Retirement plans are offered by insurance companies (you can invest throughout the accumulation period, and some plans may offer an optional life cover. Once the investments mature, a portion of the corpus can be withdrawn, while the rest must be used to purchase an annuity that provides monthly payouts for your lifetime or a certain duration).
- Other pension plans are also available, minus life coverage, where you invest a certain amount every month until your retirement. At maturity, a portion of the corpus can be withdrawn, and the remaining amount must be converted into an annuity that pays you a fixed amount each month (for your lifetime or a specific number of years).
- Immediate annuities are also available. Here, you can invest a lump sum into an annuity plan at retirement, which will start paying you a steady monthly income. The payout continues for life or a chosen period, depending on the annuity option selected.
- The National Pension System (NPS) is another choice where you can invest throughout your working life and build a corpus by choosing investments in various instruments. Upon retirement, up to 60% of the corpus can be withdrawn, while at least 40% must be used to purchase an annuity to ensure a steady monthly income. NPS offers tax benefits under Sections 80CCD(1) and 80CCD(2), making it a tax-efficient way to build a retirement corpus.
So, as you can see, these are some of the basic schemes that you can avail in order to get a steady income after retirement. You have to plan as per your risk tolerance levels, financial goals, and affordability.
Choosing and Managing Your Monthly Pension Scheme
Make sure that the monthly pension scheme you choose is tax-efficient and suited to your risk tolerance. It should ideally have lower risks, and you should invest in the long term to build a sizable corpus for the future. At the same time, choose a monthly investment amount that you can afford and do this only after using a retirement calculator to estimate how much you will need in your sunset years. Get as close to this desired investment amount as possible from an early stage. Do not put off retirement investments for your later years, since you will lose the benefits that come from compounding in the accumulation phase.
At the same time, you can consider opting for separate life insurance coverage alongside your pension investments for added financial protection. This ensures that your family remains financially secure in case something unfortunate happens to you during your working years. Here’s to securing your retirement and gaining financial stability with monthly pension/income/retirement plans.
