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Vesting age for retirement plans: Meaning and benefits

Vesting age for retirement plans: Meaning and benefits
May 18, 2023


There are several insurance plans that can be availed today, but it is important to understand the significance of the terms they use. For instance, retirement plans make use of a term called vesting age.

What does it really mean?

“Vesting age is the age when the policyholder begins receiving the pension.”

Once an individual arrives at the vesting age, they receive an annuity payout amount as per the decided frequency of the plan.

What’s important to remember is that an individual can decide their vesting age. In most cases, the range is somewhere between 30 and 80 years. In certain plans, the policyholder can receive annuity benefits immediately. These are called immediate annuity plans, where the current age of the policyholder is also their vesting age.

But are there any benefits or downsides of vesting in retirement plans? Let’s find out the details.

Benefits of vesting in retirement plans

There are several positives to vesting in retirement plans:

  • When you decide to invest in a retirement fund, you start contributing regularly for a comfortable future. This helps in creating a strategy for your retirement life. The earlier you begin, the better placed you will be in the future.
  • There’s a vesting schedule that policyholders must know about. This is particularly helpful if an individual wishes to retire early and needs to figure out how much cash they will have available.
  • The best way is to evaluate the savings you need without compromising on your lifestyle. Calculate the amount of funds that will be vested by a certain date and then figure out the income that’s required to live a comfortable life.
  • Vesting for the future also helps to secure a future. When you contribute money to the fund regularly, you know that even if the future has challenges, you will have a layer of financial security for protection. In this case, all your assets are protected.

Downside of vesting in retirement plans

  • While vesting in retirement plans inculcates a sense of discipline, it definitely is a long-term financial commitment and requires patience because the tenure can be anywhere between five and 15 years. In case you choose to forego the plan, you may have to incur surrender costs or penalty.
  • If you decide to withdraw any money from the annuity plan, remember the fee you incur is much higher than the interest you’ve earned on the principal amount. This shows that vesting in retirement plans doesn’t bring in liquidity,
  • The interest rates that you earn on your plans aren’t very high. While there’s an element of financial security attached to such plans, don’t expect high earnings.
  • Moreover, the insurance company you choose to vest in will keep your first payment. Plus, even if interest rates are increased for annuity plans, you will have to go by the interest rate that you had locked in at the beginning. This can be a drawback.

The last word

All in all, vesting in retirement plans comes with its own set of pros and cons. Take your pick based on your requirements – it may vary from person to person!

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ARN - ED/05/23/1930

Francis Rodrigues Francis Rodrigues

Francis Rodrigues has a decade long experience in the insurance sector, and as SVP, E-Commerce and Digital Marketing, HDFC Life, manages the online sales channel, as well as digital and performance marketing. He has had hands-on experience in setting up sales channels and functional teams from scratch over a career spanning 2 decades.

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Author Profile Written By:
Vishal Subharwal Vishal Subharwal

Vishal Subharwal heads the Strategy, Marketing, E-Commerce, Digital Business & Sustainability initiatives at HDFC Life. He is responsible for crafting and ensuring successful implementation of the overall organisation strategy.

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We at HDFC Life are committed to offer innovative products and services that enable individuals live a ‘Life of Pride’. For over two decades we have been providing life insurance plans - protection, pension, savings, investment, annuity and health.

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