A retirement savings plan takes care of you after your retirement by providing regular income. There is a lot of marketing buzz around best investment plans for retirement savings.
Annuity or Pension Plans
Mostly these are in the form of annuity plans. The basic idea is that you invest in these plans during the contribution stage. This can be over several years or even one lump sum. Many plans offer you investment options (government securities, debt, equity, alternative assets) for this amount. Then starts the annuity or pension stage, where you get periodic payments under the plan. These periodic payments can be monthly, annually or even increasing. They can be for a fixed period or for your lifetime.
Hybrid Plans
Some plans offer a hybrid of annuity/pension and life insurance, where if you pass away at any stage, your nominee gets the death benefit.
When you read about all this, it looks great! You get regular income during your retirement and also may be life insurance.
Why we don’t prefer Retirement Savings Plans and what are the alternatives
However, we don’t prefer such products. Retirement savings plans can get complicated and messy. Further, even without these, it is possible to get regular income after retirement and of course insurance and save tax on investments. You can buy a term life policy for your actual insurance needs since hybrid retirement plans may not offer insurance based on your need) You can invest in mutual funds and Public Provident Fund (PPF). This alternative can offer higher protection at a lower insurance cost. It can also offer better returns, higher liquidity and more flexibility to withdraw your money, should you need it.
To know more about why we don’t like retirement savings plans and the alternatives, read our note on Why you should not invest in Retirement, Pension or Annuity Plans and what are the alternatives.
You can also see our story on why you should avoid NPS (National Pension System/Scheme).
You may want to invest in retirement plans if you are bad at saving. Even then , there are alternatives like Systematic Investment Plan (SIP) for mutual funds.
Want to know how much of life insurance, PPF, mutual funds and other financial products you should invest in? Build your personalised investment plan with Propel Money here.
