Pension – An Important Source Of Post-Retirement Income

Published by Sharekhan Education | September 2, 2021

Pension – An Important Source Of Post-Retirement Income

Retirement is inevitable and every working individual will retire at some point of time or another. But life continues doesn’t it? Retirement brings with it the beginning of a new phase in life to do as you please, travel wherever you want, spend quality time with your family and friends or pursue your un-fulfilled dreams. But how can I enjoy so, if I don’t have money? This was the first thought that came to Mr. Swamy’s mind, who had just retired at the start of the year. I barely have enough money to take me through a few years of retirement; what should I do?

To live a vibrant retirement you do need money and to have money you must save and invest wisely from the very beginning of your working life. But unfortunately very few astute people realize this and diligently embark to meet this goal. A general outlook is to consider your children, especially your son as your retirement fund. A very old school of thought must say. In today’s world of nuclear families and independent children, why burden them with your responsibilities?

To lead financially secure and independent lives post retirement it would be wise to plan in advance and know the sources of your retirement income don’t you think? One such important source of retirement income is your pension.

About Pension

Pension is designed to delivera regular monthly flow of income (fixed or variable or inflation adjusted) typically after you retire. Considered as part of the employee benefits receivable from your employer, it can prove to be a useful source of regular income post retirement. But a point that needs to be made here is that this may not suffice you to meet all your living needs. This may be mainly due to the fact that the pension is calculated on a pre-defined formula. You therefore need to identify other sources to build the desired income stream.

Types of Pensions:

There are different types of pension schemes for the salaried in India like the Government Pension Scheme (GPS), the Employees’ Pension Scheme-1995 (EPS) and the National Pension System (NPS). Depending on the sector (government or non- government) employed with, you are most likely to be covered under any one of them. A point to note, any individual, irrespective of employment status can also subscribe to the NPS (All Citizen Model).

Other Retirement Income:

Besides these you can create your own retirement income using annuity plans from life insurance companies or invest in government introduced schemes for senior citizens; a useful way to substantiate your monthly income post retirement. While designing your retirement income using these or other pension schemes you need to keep in mind taxes and inflation. Tax authorities tax pension income either as salary or income from other sources, depending on its origin. Since pension receivable amounts are typically fixed, they may not guard against long-term inflation. Thus, it’s essential to craft a comprehensive retirement plan.

To wrap it up we can say pensions a useful source to generate regular income post retirement. However considering inflation and a long post retirement period; you cannot depend on this alone. To enjoy vibrant retirement and live a life of dignity with financial freedom you need to thus take a holistic approach, plan in advance and explore other investment options to supplement your post retirement needs.

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Happy Reading……….