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What is a Pension Plans Calculator?

When one does not have a financial plan in place, thinking about retirement can lead to feelings of financial anxiety and sometimes, even despair. That is why advisors insist that individuals identify their retirement income goals and list down the steps necessary to achieve them. Retirement planning involves identifying the possible sources of income, evaluating approximate expenses and executing an investment program.

The Pension calculator is designed with the intent to help users plan a financially secured retired life. Individuals can make use of this online tool to calculate how much corpus they will need to accumulate by the time they retire. All that one needs to do is provide basic inputs with regards to savings, earnings and expenses, and the retirement calculator will evaluate the annual income required post retirement.

Benefits of Pension Plan Calculator

Retirement planning deals with the allocation of savings or revenue for the purpose of achieving retirement income goals. Through it, individuals can determine i) how much they are going to need to save today for retirement ii) how to go about investing their income and/or savings to get the desired returns iii) how to protect assets in the event of an unfortunate event and iv) how to wisely utilize retirement income after retirement. Besides these points, here are some solid reasons why retirement planning is necessary:

Gain from compounding

One of the reasons that financial advisors insist on early retirement planning is the advantage that comes with the power of compounding. The sooner one starts investing, the better. Through the power of compounding, an individual not only earns interest on the principal investment amount, but also on the earlier interest received. Overtime, the snowball effect will result in a sizeable corpus, thereby helping to ensure that the investor’s retirement years are financially secured.

Save for a rainy day

While it may not be possible to predict the risks that could arise in the future, it is very well in one’s power to be financially prepared for it. When life throws a curveball, a secure retirement corpus can help an individual sail through life smoothly. In some cases, an individual may even be able to pledge his or her retirement fund for a short-term loan, if a sudden emergency arises where funds are required right away.

Tax benefits

In case of investments made in pension plans to meet post-retirement needs, it is essential to note that tax benefits can be claimed on the contributions made. Tax deduction can be claimed for payments made toward a pension plan under Section 80CCC of the Income Tax Act, 1961, up to a maximum ceiling of Rs. 1.5 lakhs. Additionally, one-third of the corpus distributed to the retiree by the pension plan is exempted from tax. The remaining money is distributed as an annuity and is subject to taxation.

Uses of Pension Planning Calculator

The retirement calculator is a useful tool in helping individuals assess the corpus they will require to ensure a well-planned lifestyle post retirement. Here is a quick look at some of the ways an individual can benefit from using a retirement calculator:

  • It will provide a clear picture of how much an individual will need to save every month to meet his or her financial goals.
  • It will show how much income one will require after retirement to sustain his or her desired lifestyle.
  • On the basis of the results, the user will be able to assess which investment avenue is best-suited to park his or her money right now.

How To Use Retirement Planning Calculator?

The retirement calculator is easy-to-use and does not require the user to pay anything for using it. All that the individual needs to do is enter a few basic details, which will include his or her personal details, income details and savings details. The calculator will factor in these elements and provide an assessment on the savings required post retirement and how much money the user will need to start saving right away. Based on the data provided by the calculator, the individual can determine which course of action to take with regards to saving for retirement now.

Why Should You Plan Your Retirement?

Retirement planning deals with deciding what one’s retirement goals are and the actions that need to be undertaken to bring these goals to fruition. Failing to have a solid plan in place for one’s golden years, would mean putting the financial future at risk. Life expectancy statistics reveal that many people could spend up to a third of their life in retirement. Therefore, it is essential to establish a financial plan that will provide adequate income for about 20 to 30 years. Besides requiring funds to last many years post retirement, individuals need to be protected from rising prices. As the cost of basic items are expected to rise quite a bit in the next 20 years, it is necessary to create a retirement investment portfolio that will help reduce the impact of rising costs on savings.

Required Field In Pension Calculator

Pension calculator is a tool that is designed to give users an idea about how much income they will need after retirement. Some of the factors that are taken into consideration by this calculator include date of birth, retirement age, savings, annual income and post retirement accommodation. On the basis of the information entered, the pension calculator will show how much money the investor will need post retirement to sustain his or her desired lifestyle and the amount that the individual will need to invest now.

FAQs on Pension Plan Calculator

How is pension calculated?

The calculator will factor in an individual’s income, savings and expenses and accordingly suggest the pension amount that he or she will need for meeting the requirements that will arise after retirement.

What is a Pension plan?

A pension plan is a type of retirement plan that helps individuals create a corpus for their future. It can be further classified into immediate annuity plans and deferred annuity plans. The former involves those that can be purchased by paying a lump sum amount as a single premium. The pension will begin right after buying the plan. Deferred annuity plans, on the other hand, are those whose annuity starts after a certain date.

What are the tax benefits of investing in a pension plan?

Tax deduction up to Rs. 1.5 lakhs can be claimed for the contributions made to a pension plan under Section 80CCC of the Income Tax Act, 1961. Additionally, a third of the corpus that is distributed to the retiree is tax-free. The remaining, however, is taxable if not utilized for buying an immediate annuity plan.

Are early withdrawals from a pension plan possible?

Some funds may allow partial/full withdrawals during accumulation period.

What happens when a pension plan is surrendered before maturity?

If an individual chooses to surrender his or her pension plan, the insurance company will compute the surrender value and make the payment. The surrender value will be added to the policyholder’s income and become taxable if the individual has availed tax benefits while paying premium before the set period of time has lapsed. However, if the policyholder has not availed tax benefits, then the excess of surrender value over the premium paid, may be taxed at a marginal rate.

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