Retirement plans are also known as pension plans. A pension plan or an annuity is an investment that is made either in a single lump sum payment or through installments paid over a certain number of years, in return for a specific sum that is received every year, every half-year or every month, either for life or for a fixed number of years. Annuities differ from all the other forms of life insurance in that an annuity does not provide any life insurance cover but, instead, offers a guaranteed income either for life or a certain period. Typically annuities are bought to generate income during one's retired life, which is why they are also called pension plans. By buying an annuity or a pension plan the annuitant receives guaranteed income throughout his life. He also receives lump sum benefits for the annuitant's estate in addition to the payments during the annuitant's lifetime.
A retirement plan is an assurance that you will continue to earn a satisfying income and enjoy a comfortable lifestyle, even when you are no longer working.
You can allocate funds among the Employees Provident Fund (EPF), Public Provident Fund (PPF), Post Office Monthly Income Scheme (POMIS), systematic investment plans (SIP) of various mutual funds (they allow you to contribute a sum of money regularly, like a recurring deposit scheme), the UTI Retirement Benefit Plan, the Franklin India Pension Plan or pension plans offered by various insurance companies. You can opt for a market-linked plan that operates much like a mutual fund or a simple plan that allows you to pay a fixed premium every year and gives the option of taking an annuity at the end of the contribution period. But, you must always consider the positives and negatives of every policy before settling to choose one. You ought to keep the retirement benefit plans in mind when making your choice. It would depend on the amount you can save, the return you are looking at, your risk appetite, your age and the income bracket you are in so that you can maximize your returns by leveraging all possible tax benefits. The uncertainty over the interest rate makes it difficult to arrive at a cut-and-dried strategy for long-term asset allocation.
Depending on your life stage and level of income, many life insurance companies structure pension schemes on three models. All three models aim for maximum retirement benefit plans in terms of life insurance, tax benefits and inflation correlation.
» The risk-averse model -- If you are in the late-thirties-early-forties, then a risk-averse portfolio will suit you.