What is Pension Planning?
A Pension Planner helps you transition from your accumulating phase (saving money while working) to your distribution phase (drawing a monthly income during retirement).
This tool estimates how large your retirement corpus will grow by the time you retire, and based on that corpus, how much monthly pension you can safely generate to replace your current salary.
Assumptions and Limitations
This calculation relies on several key assumptions:
- Accumulation Return: The growth rate of your investments before retirement (often higher, as you can take equity risk).
- Annuity Return: The interest rate your corpus earns after retirement (usually lower, as retirees shift to safe debt instruments).
- Constant Contributions: It assumes you continue investing the same amount every month until retirement without fail.
The Impact of Tax on Pension
Most traditional pension plans and annuity payouts are fully taxable as income in your retirement years. When looking at the estimated monthly pension, remember that your actual in-hand amount will be lower depending on the tax slabs applicable during your retirement.