How to Get a 10k Monthly Pension? Check Ways & Plans in 2023
Updated On Aug 22, 2023
A monthly pension is a retirement income scheme that ensures financial stability for individuals post their active employment period. It serves as a recurring financial inflow, enabling retirees to maintain a specific standard of living even after ceasing active employment.
Table of Contents
- Why Do You Need A Retirement Plan?
- Benefits of a Retirement Plan
- Existing Pension Systems in India
- Comparing the Schemes
In the Indian context, the pension system is a pivotal component of retirement planning. It is deemed significant because it provides a consistent income stream when the regular salary ceases. This gives retirees financial independence, ensuring their capacity to manage primary expenses independently.
Given the prevailing inflation rates and the escalating healthcare expenses, having a robust pension plan is not just an advantage but a necessity. It transcends beyond mere survival during retirement. Instead, it aims to provide an avenue for retirees to appreciate their non-working years, backed by financial security.
Why Do You Need A Retirement Plan?
Everybody knows that the future is unpredictable. There will be a time when you will retire from active work. This will result in a stoppage of regular income for your family. Your retirement plan will be helpful during such times if you have one.
A retirement plan provides the much-needed regular income after you retire from active work. This regular income will help fulfil your daily needs and take care of any healthcare or unexpected costs. However, a suitable retirement plan will not just help cover your regular expenses.
If you can plan a sufficient regular income after your retirement, it can also help you enjoy your life. It can cover your travelling expenses and also help fulfil your bucket list without worrying much about money. In other words, you can live your dream life after retirement with a proper retirement plan.
Benefits of a Retirement Plan
Financial stability is one of a retirement plan's most significant benefits. After spending a significant part of your life working, a retirement plan ensures you have a steady flow of income even when you stop working. It helps manage regular expenses, healthcare costs, and unforeseen financial needs.
A well-planned retirement strategy allows you to maintain your standard of living. You've worked hard all your life and deserve to enjoy your retirement without drastically altering your lifestyle. Your savings and investments can provide the necessary funds to support your lifestyle post-retirement.
Health issues often come uninvited, especially during old age. Rising healthcare costs can significantly dent your savings. A retirement plan usually includes provisions for health insurance or medical contingencies, thereby ensuring you're not burdened with hefty medical bills.
With a retirement plan, you can leave behind a financial legacy for your loved ones. Your savings, investments, or insurance can provide monetary assistance to your family members even after your lifetime.
Existing Pension Systems in India
National Pension Scheme (NPS)
The Pension Fund Regulatory and Development Authority (PFRDA) oversees the National Pension Scheme, a voluntary long-term investment plan for retirement. All Indians between the ages of 18 and 65 can opt for this program. It allows contributors to make regular deposits during their working life, withdraw a lump sum, and/or opt for a regular pension post-retirement.
The key benefit of the NPS is its flexibility. It allows you to choose your investment options and pension fund manager, ensuring control over where your money goes. Moreover, contributions made to NPS are eligible for tax deductions, making it a tax-efficient savings option.
Employee Provident Fund (EPF)
Next on our list is the Employee Provident Fund. The EPF is a retirement benefit scheme primarily meant for salaried employees. The employee and the employer make equal monthly contributions (currently 12% of the employee's basic salary) towards this fund.
The EPF is administered and overseen by the Employees' Provident Fund Organization (EPFO). The government decides the interest rate on the EPF, and is generally higher than inflation, providing real returns on your savings. Another unique feature of the EPF is its EEE (Exempt-Exempt-Exempt) status, which means that contributions, interest earned, and withdrawals after the specified period are all exempt from income tax.
Public Provident Fund (PPF)
The Public Provident Fund is a government-backed, long-term savings scheme. It's open to all Indian residents and can be opened in a bank or post office. The tenure of a PPF account is 15 years, extendable in blocks of 5 years.
Like EPF, PPF also enjoys the EEE tax status, providing significant tax savings. Moreover, it's considered one of the safest investment avenues since the principal and the interest earned have sovereign guarantees. The PPF has a lengthier lock-in time than some other choices, which may reduce some investors' interest in it.
Atal Pension Yojana (APY)
Last but not least, we have the Atal Pension Yojana. The APY is a government initiative designed to provide a steady income to workers in the unorganised sector after their retirement. The scheme allows for contributions of varying amounts and provides a fixed minimum monthly pension of Rs. 1,000 to Rs. 5,000, depending on the contributor's choice.
The APY has a particular focus on enabling lower-income segments to save for retirement. The government co-contributes 50% of the subscriber's contribution, up to Rs. 1,000 per annum, for eligible subscribers.
Mutual Funds for Pension Planning
Mutual funds, a popular investment avenue, pool money from various investors to purchase a diverse array of assets. Specifically, pension-oriented mutual funds are designed to accumulate a substantial corpus over the long term. Upon retirement, investors can opt for a systematic withdrawal plan to receive a fixed income every month.
Mutual funds' key benefit is the potential for significant returns, particularly if you start investing early and keep investing for a prolonged period of time. They also offer high liquidity, letting you take out cash as needed.
Senior Citizens' Saving Scheme (SCSS)
SCSS is a government-backed savings instrument for Indian citizens aged 60 and above. It offers a secure, regular income stream and currently provides an attractive interest rate.
SCSS is a low-risk, fixed-return investment option with a maximum limit of INR 15 lakh. Its maturity period is five years, extendable by three years. Interest earned is payable quarterly, enhancing the regular income for retirees.
Comparing the Schemes
Each of these pension systems has its pros and cons. The NPS offers flexibility and tax benefits but requires active management. The EPF provides a good return and has robust tax benefits but is mainly limited to salaried employees. The PPF offers safety and attractive tax savings but has a long lock-in period. Lastly, the APY is a valuable initiative for low-income earners, with government co-contribution but offers a limited maximum pension. Therefore, choosing the right scheme depends on your income, savings capacity, and retirement goals.
Planning for a comfortable retirement is a journey, not a destination. A long-term commitment and careful thinking are important for selecting the best retirement plan. In India, securing a 10k monthly pension in 2023 is feasible through a blend of pension systems such as mutual funds and the Senior Citizen Saving Scheme (SCSS). Remember, every rupee saved today can grow manifold and secure your sunset years. Consider speaking with a financial advisor to tailor a plan that suits your specific needs, as each individual's financial circumstances vary. Start early, remain consistent, and reap the benefits in your golden years.
- Can you tell me about the National Pension Scheme? How does it work?
Yes, the National Pension Scheme, or NPS, is like a savings account for your retirement. While you're working, you keep adding a little bit of money to it. When you retire, you can take some of the money out all at once, and the rest will be used to give you a regular income every month.
- What's the difference between the Employee Provident Fund and the Public Provident Fund?
The Employee Provident Fund (EPF) and the Public Provident Fund (PPF) are both ways to save for retirement. The key difference is that EPF is for people who have a job with a salary, and both the employee and the employer put money into it. On the other hand, PPF is for everyone, even if you're self-employed and you're the only one putting money into it. Both of them give you certain tax benefits.
- How can I make sure my retirement money lasts longer?
One way is by spreading your money across different types of savings and investments. This could include government schemes, mutual funds, and other investments that fit your comfort with risk. You can also choose to slowly take money out of your mutual funds to manage your spending better after you retire.
- Is the Senior Citizens' Saving Scheme safe?
Yes, the Senior Citizens' Saving Scheme, or SCSS, is backed by the Indian government, so it's very safe. It's a good option for retired people because it gives you a regular income and the interest rates are quite attractive.
- When should I start planning for my retirement?
The sooner, the better! If you start planning for retirement in your 20s or 30s, you can save a little bit every month and let the magic of compound interest do the rest. By the time you retire, you'll have a nice little nest egg waiting for you.