5 Year Retirement Plan

Table of Content

1. What Makes a 5-Year Timeline Unique for Retirement Planning

2. Key Financial Milestones in Your 5-Year Journey

3. Benefits of Choosing a 5-Year Retirement Plan

4. Who Should Consider a 5-Year Retirement Plan?

5. HDFC Life’s 5-Year Retirement Plan Features

6. Tax Benefits of 5-Year Retirement Plans

7. Tax Implications on Maturity

8. Why Choose a 5-Year Plan Instead of Longer-Term Options?

9. Start Your 5-Year Journey to Financial Planning Today

A 5-year retirement plan is a unique financial product that allows returns over the short term, say 5 years, to achieve a steady income after maturity. In contrast to regular retirement plans involving decades-long contributions, this short-term strategy emphasises the quick capital build-up. 

The different retirement plan from HDFC Life aligns well with this strategy. It offers a 5-year retirement plan that pays guaranteed annuities after a brief deferment period, making it suitable for individuals nearing retirement. 

Let us look at an example to understand in a detailed manner.

Consider Mr. Verma, a 58-year-old professional planning to retire at 63. He invests a lump sum of ₹10 lakh in the HDFC Life Guaranteed Pension Plan². After a 5-year deferment, starting at age 63, he begins receiving regular annuity payouts for life. 

This structured approach allows him to convert his savings into a stable income stream without depending on market-linked instruments at a late stage in life.

What Makes a 5-Year Timeline Unique for Retirement Planning

Short-term retirement plans are framed for urgent needs. 

• Combines Quick Capital: It facilitates capital appreciation with efficient risk management to increase your investment over time without the negative effects of market volatility. 

• Balances Growth and Security: The short tenure also promotes specialised contributions, usually with surety annuity benefits after maturity. This renders the 5-year product both reliable and effective for those who cannot afford to wait.

Key Financial Milestones in Your 5-Year Journey

Here are the key milestones in your short-term retirement plan planning journey:

• Year 1: Initiate premium payments (one-time or periodic). Annuity rates are locked by plan, and compounding begins.

• Year 3: Midpoint review where your investment begins to mature, and you can evaluate corpus growth and payout strategies.

• Year 5: You get assured annuity payments depending on the selected period. 

Benefits of Choosing a 5-Year Retirement Plan

A quick retirement planning offers clear benefits over multi-year investment schemes, particularly for individuals who have little time left before retirement. These plans can cover post-retirement expenses like medical care, travel, or topping up a pension. 

Here are some other benefits of selecting these retirement plans:

1. Accelerated Wealth Building: How 5-Year Plans Maximise Quick Returns

These short-term retirement plans are created for high-impact growth in a compressed timeline. Rather than slow compounding over the years, the plan offers affordable premiums starting at ₹2000 per month and guaranteed interest buildup to create your corpus rapidly. 

For example, a 58-year-old investing ₹10 lakhs in a 5-year plan can begin receiving guaranteed monthly payouts by age 63. 

2. Flexibility and Adaptability for Near-Term Financial Goals

The scheme provides a range of premium payments and payout frequencies. Furthermore, some schemes permit premature withdrawal with lower benefits, providing security in times of need. 

For instance, after contributing to a short-term retirement plan for 8 years, if a family member falls ill, you can withdraw funds from your retirement plan immediately to support the crisis.

3. Lower Risk Profile for Soon-to-Retire Individuals

Unlike long-term retirement plans, this retirement plan is suited for individuals who value capital protection and guaranteed returns. It reduces exposure to interest rate fluctuations and market volatility, making it suitable for conservative seniors. 

For example, Mr. Gupta, a 60-year-old investor, chose this plan to avoid market-linked risks and locked in a fixed annuity. Despite rising interest rate fluctuations, their post-retirement income remains stable and secure.

Who Should Consider a 5-Year Retirement Plan?

A 5-year retirement plan is curated for a specific audience, like people aged 55 to 58 nearing retirement, who do not have adequate savings and investments. Generally, working professionals in the private sector with no guaranteed pension plans must consider this. It is the right choice when time is limited, but the need for financial stability is high. 

Here are the individuals who should consider this retirement plan: 

• Pre-Retirement Professionals (Age 55-60) Looking to Supplement Income

Retirement planning for seniors enables individuals aged 55 to 60 years to save aggressively and begin drawing income just in time. It bridges the income gap while retaining peace of mind.  

• Individuals with Specific Short-Term Financial Milestones

With its fixed schedule and payout definition, the plan is perfect for funding personal needs. For example, retirees who want to finance their child’s wedding, pay for medical bills, or embark on that dream tour of Europe can use the plan to achieve these very goals.

• Late Starters Needing Rapid Financial Security

Most professionals prioritise their family over money in their younger years. This plan is an accelerator to create and safeguard assets for those who start planning late.  

So, it is never too late to start a suitable plan to secure your future!

HDFC Life’s 5-Year Retirement Plan Features

HDFC Life's 5-Year Retirement Plan is a deferred annuity plan offering assured lifelong income after paying premiums for only five years. Its uniqueness is guaranteed annuity rates, payout mode choices, return of premium options, and death benefits, within a safe and risk-managed framework.

Here are the detailed features of this short-term retirement plan: 

• Guaranteed Returns Structure for Short-Term Planning

The scheme promises a certain annuity rate at purchase, providing certainty. Therefore, you will get fixed payouts regardless of market fluctuations. 

For example, a 60-year-old investing a lump sum before retirement can begin receiving a stable income from age 65, unaffected by interest rate shifts or equity market volatility. This predictability supports better household budgeting during retirement.

• Pension Options After the 5-Year Maturity Period

Following the deferment period, you may opt to take annuities monthly, quarterly, or annually. For instance, you may select life annuity, joint life annuity, or annuity with return of premium, allowing you to personalise income flow according to your household's requirements.

• Rider Benefits Exclusive to 5-Year Plan Holders

A 5-year retirement plan holder can receive additional rider benefits such as an accidental death benefit or a waiver of premium in case of critical illness. These rider benefits add to the security period while contributing and provide peace of mind during uncertainties. 

Tax Benefits of 5-Year Retirement Plans

A short-term retirement plan not only builds your financial base, but it also helps you save taxes on your income. Contributions to these plans are deductible, and annuity payments have their own tax regime. Below are the details: 

• Deduction under Section 80C

Investment in notified Pension scheme of UTI or mutual funds provide tax relief under Section 80C of Income Tax Act, 1961 during the accumulation stage up to ₹1.5 lakh.  

• Section 80CCC Deductions for Short-Term Pension Contributions

Premiums contributed to pension fund of Life Insurance Companies are eligible for deductions under Section 80CCC1 of the Income Tax Act, 1961, providing deduction upto maximum of Rs 1,50,000. 

• Deduction under Section 80CCD(1)

Section 80CCD(1) allows a deduction for Contributions made to Pension Scheme of Central Government / National Pension Scheme (NPS) by salaried employees or other individuals, subject to the prescribed limit. In addition, Section 80CCD(1B) provides an extra deduction of ₹50,000 for contributions beyond those covered under Section 80CCD(1). Thus, a taxpayer can claim a total tax benefit of up to ₹2,00,000.

However, you will get a combined deduction of Rs. 1.5 Lakh under sections 80C1, 80CCC1 and 80CCD(1) as specified under Section 80CCE. Such deductions lower your total taxable income during your working years, helping you to save tax.

Thinking of how to claim this deduction? Follow these:

• Ensure the premium payment is made from your taxable income during the financial year.

• When filing your Income Tax Return (ITR), report the premium amount under the deductions section (Chapter VI-A).

• Maintain documentation such as premium payment receipts or the insurer’s certificate as proof in case of verification by tax authorities.

This deduction helps reduce your gross total income, thereby lowering your overall tax liability during your earning years.

Tax Implications on Maturity

When a pension policy matures, the taxpayer/recipient is allowed to withdraw a certain portion of the maturity amount as a lump sum — this is called Commutation. This withdrawn portion is usually tax-free if it meets the conditions under Section 10(10A)(iii) of the Income-tax Act, 1961¹. For example, if the total maturity value is ₹10 lakh, the taxpayer/recipient might be allowed to take ₹6 lakh as a lump sum which will not be taxable.

The balance amount from the maturity amount must be mandatorily used to buy an annuity plan. This annuity plan will provide regular income, like monthly or yearly pension. However, this annuity income is fully taxable in the hands of the taxpayer/recipient.  

However, through proper planning, including delaying payouts or opting for joint annuity options, you can reduce the taxable amount.

To minimise tax liability, you can consider the following tax withdrawal strategies:

• Opt for Joint Life Annuity: This ensures continued income for your spouse and may help spread the tax impact over a longer duration.

• Choose Deferred Annuity: Delaying the start of your annuity can help you begin withdrawals in a lower tax bracket post-retirement.

• Stagger Withdrawals: Instead of taking a lump sum, opt for periodic payouts to avoid a spike in your annual taxable income.

• Utilise 80C/80CCC¹ Deductions: Premiums paid towards eligible retirement plans may qualify for tax deductions up to ₹1.5 lakh annually.

Why Choose a 5-Year Plan Instead of Longer-Term Options?

Long-term strategy is best implemented early. However, if you are late, a 5-year retirement plan gives you immediate solutions. It guarantees income within a fixed period, which makes it best suited for goal-based, short-term investors. You quickly have structure, clarity, and security for your finances.

Start Your 5-Year Journey to Financial Planning Today

Ready to turn your retirement goals into reality? Choose HDFC Life’s retirement plan and secure guaranteed income. Visit the HDFC Life website or connect with a financial advisor today to get started on a financially secure future.

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