Ultimate Guide to Retirement Plans in India

Padmaja Choudhury   /   September 12, 2022

Let’s discuss “retirement plans” Today. You’ve probably heard the term “retirement planning” a few times. While the word “planning” might lead you to believe that this is just about planning for the future, the term is much more involved than that. Retirement planning can cover quite a bit of ground, with many aspects to consider. In this article, we will look at what retirement planning entails and see how you can get started in implementing your own personal plan.

What is retirement planning?

Planning for retirement means figuring out how much money you want to have in retirement and what you need to do to get there. Identification of income sources, estimation of expenses, implementing a savings plan, and managing assets and risk are all components of retirement planning. Future earnings are calculated to determine whether the retirement income objective is realistic.

Although you can begin at any moment, it will work best to include it as early as possible in your financial planning. That is the best approach to guarantee a secure, enjoyable, and safe retirement.

Every retirement strategy is different. Because you can have quite particular plans for your retirement, for this reason, it’s crucial to have a plan that is created precisely to meet your unique requirements.

Importance of retirement planning

Retirement planning is a difficult, complex and daunting task. It is also one that must be done as soon as possible.

A good retirement plan will help you to save for your future, prepare for the unexpected and ensure financial security in old age. A bad one can leave you struggling financially in later life.

Here are some of the most important reasons why retirement planning is essential:

To help you work out how much money you need in retirement, you can plan how much to save and invest now to meet those needs.

To help you decide when to retire, if at all, and what type of lifestyle to have during retirement.

To help you ensure that your investments are managed appropriately over time so that they grow enough to provide an adequate income when you retire.

To ensure that when/if something happens (e.g., an illness or accident) which means that you cannot work anymore or want to stop working earlier than expected, there is the sufficient income available from your savings and investments to enable you to live comfortably without needing to worry about money too much ever again (or at least until later).

What are retirement plans?

These specially created investment plans let you put money away until you retire so you can enjoy the benefits of your labour. You regularly contribute a particular amount to a retirement plan starting when you purchase it. When you retire, your income ends, and you begin receiving a consistent income from your retirement plan at regular times. These plans frequently include life insurance coverage. So, in addition to building wealth, you also receive life insurance protection.

Retirement plans may be paid for in one lump sum or gradually over time. Each retirement plan has unique advantages and payment options. Please carefully read the sales brochure before purchasing any plan.

There are different types of investment and pension plans that aim to help you plan for your retirement. We will look at the popular retirement schemes in India, such as retirement mutual funds, pension funds, PPF and NPS.

Retirement Mutual Funds

The retirement fund is one of the best investment plans for retirement. It is a type of mutual fund specially meant for retirement planning. These retirement funds are solution-oriented mutual funds with a lock-in for at least 5 years or till retirement age, whichever is earlier.

Retirement Funds are available under three different plans. While the names of the plans might differ from one fund house to another, these plans can be classified into aggressive, moderate and conservative plans.

Retirement plans are designed so that investors can continue investing for their retirement throughout their life span and cater to the changing risk profile.

Aggressive plans typically have a higher allocation to equities as these plans focus on maximising returns. The equity portion of the moderate and conservative plans is lower than aggressive plans. The debt portion increases as the risk tolerance of most investors decreases as they age. Also, investors might want to use this accumulated money to fund their expenses after retirement.

Retirement Plans/Pension Plans

In addition to the mutual fund industry, life insurance companies offer retirement or pension plans. However, working on a pension plan is different from retirement mutual funds.

Let us see how it works:

The main reason to invest in a pension plan is to make sure you have a steady income even after you retire and to have a backup plan in case your savings don’t cover an emergency.

You must pay a premium to join a pension plan in India, just like any other investment or savings plan. The premiums, however, are accumulated in your chosen fund, usually for a predetermined amount of time. You will be qualified to earn pension benefits after the plan achieves maturity, which can then be used in one of the following three ways:

  • Withdraw the entire benefit/amount all at once.
  • Buy an annuity plan.
  • Withdraw a portion of the pension benefits and invest the balance in an annuity strategy.

Today, however, policyholders also have the choice of giving up or terminating a pension plan, but a fee or charge may apply. In addition, if you leave the pension plan after five years, you might still get interest payments. In contrast, if you stop your retirement plans in India before the full five years have passed, you will need to purchase an immediate or deferred annuity plan.

Types of pension plans in India

There are different types of pension plans in India. And you can select the best pension plans as per your requirements.

Deferred Annuity

The policyholder can create a corpus under the deferred annuity pension plan by making monthly or daily premium payments. As a result, they will accumulate a sizeable sum of money for a pension during the course of the scheme. Additionally, this type of pension plan can benefit from additional tax benefits.

Immediate Annuity

It is an immediate payment version of an annuity. As soon as you make a lump sum deposit, you can begin receiving annuities as a pension. You can pick the type of annuity plan you desire and the investment amount.

Annuity Certain

The policyholder would receive the annuity under this type of pension plan for a specific number of years, making it the greatest pension plan in India. They can choose the payment period that works best for them. The contributions are made to the pension plan’s nominee in the case of the insured’s demise.

Life Annuity

As the name suggests, this pension plan is in effect until the policyholder dies. If the insured passes away, their spouse will be eligible for the pension payout if the policy provides a “with spouse” option.

Pension plans with life insurance

Such pension programmes combine both investments and life insurance. It guarantees that the policyholder’s family will receive a lump sum payment in the event of the policyholder’s death. It’s crucial to remember that this type of pension plan’s insurance payment amount can be lower than with a stand-alone insurance plan.

Whole Life ULIPs

Depending on the insurance provider, standard pension and retirement plans cover you up until 70 to 80. However, Whole Life ULIPs cover you throughout the duration of your life, as the name implies (till 99 or 100 years). In addition to death benefits, a Whole Life ULIP also offers maturity benefits.

Defined Benefit

An employee benefit pension plan with a defined benefit is one that the company sponsors. The employer frequently employs an investment manager to handle risks and investment funds. After taking into account a number of variables, including the employee’s income and employment history, the plan is presented to them.

Defined Contribution

Employer and employee contributions are split equally in a defined contribution-based pension plan. Most businesses make similar contributions to the plan as employees. This kind of scheme on withdrawal imposes some limits.

With Cover and Without Cover Pension Plans

The inclusion of life insurance is what distinguishes pension plans with and without coverage. The Without Cover pension plan does not have a life insurance component, whereas a With Cover pension plan does. The policyholder gets paid the fund value in both scenarios, though, in the event of the policyholder’s passing.

Guaranteed Period Annuity

This kind of pension plan offers a guaranteed annuity for a set duration. At the time of purchase, this duration is chosen.

Public Provident Fund (PPF)

Public Provident Fund (PPF) is among the best retirement investment options available to Indian citizens.

Here are some features of PPF:

  • The purpose of the Public Provident Fund (PPF), which was first implemented in India in 1968, was to mobilise small contributions for investment and return. It can also be referred to as an investment vehicle that enables one to accumulate retirement funds while minimising income taxes.
  • One of the finest investing options for those with a limited tolerance for risk is a PPF account.
  • PPF is a programme that is backed by the government, and the investment is not tied to the market. As a result, it provides guaranteed returns to meet many people’s needs for safe investments.
  • PPF accounts are used to diversify an investor’s portfolio because their returns are fixed. They also provide advantages for tax savings.
  • The PPF account balance can typically only be entirely withdrawn upon maturity or after 15 years have passed. After 15 years, an account holder’s full balance in the PPF account, including earned interest, is free to withdraw, and the account may be terminated.
  • However, the plan allows partial withdrawals starting in year 7 or after completing 6 years if account holders need money and want to withdraw before 15 years.

National Pension System

The National Pension System (NPS) is a voluntary, defined contribution retirement savings plan created to help members make the best choices for their future via methodical saving throughout their working lives. The NPS aims to help people develop the habit of saving for retirement. It is an attempt to find a long-term way to ensure that every Indian citizen has enough money to live on when they retire.

The National Pension System (NPS) pools individual savings into a pension fund, which PFRDA-regulated professional fund managers then invest in accordance with approved investment guidelines in diversified portfolios that include shares, corporate bonds, government bonds, and treasury bills. These contributions would increase and accrue over time depending on the profits received on the investments placed.

In addition to withdrawing a portion of the accumulated pension wealth as a lump sum, the subscribers have to buy an annuity plan from a PFRDA-accredited Life Insurance Company at the time of their retirement.

Features of NPS


A portion of the NPS is invested in stocks, so it may not offer guaranteed returns)  However, compared to conventional tax-saving investments like the PPF, it provides far higher returns. If you are unhappy with the fund’s performance, NPS also allows you to switch fund managers.

Asset Allocation:

You can choose from various asset classes with NPS, including stocks, corporate bonds, government bonds, and alternative investment funds. You can also specify the percentage of your investments that should go to each asset class. However, the maximum equity allocation for subscribers up to 50 is 75%.

Tax benefits:

The following tax benefits are available to employees who contribute to the NPS for their own contributions:

  1. a) Within the overall ceiling of Rs. 1.50 lakh under Section 80 CCE, a tax deduction of up to 10% of the pay (Basic + DA) may be made.
  2. b) A tax deduction of up to Rs.50,000 is allowed under Section 80 CCD(1B), in addition to the overall cap of Rs. 1.50 lakh allowed by Section 80 CCE.

Employee tax benefits from employer contributions:

Eligible for a tax deduction of up to 10% of the pay (Basic + DA) that the employer contributes under Section 80 CCD(2) over the ceiling of Rs. 1.50 lakh granted by Section 80 CCE (14% if the Central Government makes such contribution).

  1. Tax advantages for self-employed:

Self-employed people who make NPS contributions are qualified for the following tax breaks on their own contributions:

  1. a) The tax deduction allowed by Section 80 CCD (1) is 20% of gross income up to a maximum allowed by Section 80 CCE of Rs. 1.50 lakh.
  2. b) A tax deduction of up to Rs.50,000 is allowed under Section 80 CCD(1B), in addition to the overall cap of Rs. 1.50 lakh allowed by Section 80 CCE.


The importance of retirement planning cannot be stressed enough. By having a plan, you can manage your money better and put aside enough funds to retire on time and provide for yourself during this stage in life. Although you may be making plans regarding your career and home, don’t forget to include your retirement plans. You wouldn’t risk your health and not make any plans for a future health crisis, now would you? So take care of yourself and plan for retirement because once it’s too late, you may never have the opportunity to do so again.

You can talk to an expert to help you figure out the best retirement plans.

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