With some good planning, annuity options can help ensure financial security in retirement
Retirement is a word that scares many people. In a society where everything becomes more and more expensive with each passing year, the thought of living your life with little or no income is a scary one if you haven’t planned well.
On the other hand, if you have sound financial planning and if you have an assured, steady flow of income with no effort on your part, retirement can be an enjoyable and also a fulfilling experience.
You can focus on your family, give time to your hobbies, travel, spend quality time with your grandchildren. The idea is that if you have secured your post-retirement life, you can use your time to do things that you may have missed because of the daily grind to that point of your busy work life. .
And, with ever-increasing medical inflation and higher life expectancy, it has become even more important that you plan for life after retirement wisely.
Interest rates on bank fixed deposits (FDs) and public provident funds (PPF), two of the most popular long-term savings instruments, continue to fall and are at a decade low; It is time to consider switching to products that offer guaranteed returns. The Public Provident Fund, which used to offer 11-12% interest per annum in the 1990s, now offers only 7.1% interest. Similarly, the interest rate on bank fixed deposits has fallen from 8.5 per cent in 2014 to 5.4% in 2020.
Annuity plans enable you to get regular payouts for a lifetime after investing a lump sum only once. The regular payment can work as a pension and can be used to cover your essential expenses and also to maintain the kind of lifestyle that you are used to.
Some annuity plans continue to make payments after your death, and make payments to your spouse. Also, many such schemes return the entire amount invested after the death of the beneficiaries to their nominees, who could be your children. So you don’t even have to worry about their financial future.
Let’s take a look at some of the different types of annuity plans available in India.
immediate annuity
Under this plan, you start receiving payments immediately after making the initial lump sum investment. Opting for this type of annuity is a good idea if you are approaching retirement age or have just retired. If you have been investing in various investment instruments for your retirement fund throughout your life, you can use those savings and at retirement to start receiving regular payments every month, quarter or year depending on your needs. One can opt for an annuity plan.
deferred annuity
In a deferred annuity, money is invested for a specific period before it is paid out. This is an option only for those who are still some time away from their retirement.
fixed annuity
Under a fixed annuity plan, the amount of regular payment is fixed for the entire tenure of the annuity plan. Also, in such plans, the duration of the plan is also fixed. Therefore, if the insured dies during this period, the nominee of the insured will receive the fixed payout.
joint annuity
In joint life annuity plans, after the death of the annuitant, the annuity is paid to the spouse during his or her entire lifetime. This is a great option for those where the couple depends on one income. In this way, even after the death of the earning member, the future of the other member will be secure.
purchase price refund
While the annuity plan will ensure fixed and periodic payments to you throughout your lifetime, the insurance provider will also return the initial amount used to purchase the annuity plan to the nominee after the death of the annuitant.
This option is available for both single-life and joint-life variants. In the latter case, you will receive regular payments first. After your demise, your spouse will receive the payment. And finally, the initial amount of investment will be received by the nominee after the death of your spouse.
Among the service providers in the market, these plans offer you a wide range of returns.
For an investment of ₹10 lakh, a person aged 55 years can expect an annual return of around 5.35% to 6.3% till the age of 80, after which the amount invested comes back to the individual. Similarly, a person starting an annuity at the age of 60 can expect to see returns between 5.4% to 6.28%, depending on the choice of the provider.
lock in return
The advantage in an annuity plan is the ability to lock in specific returns for a longer period, as compared to PF or FD options which may depend on the market whims or the decisions of the government of the day.
Hence, one can say that annuity plans are designed to give you a comfortable life after your retirement by providing you with financial security.
These are one of the safest investment instruments with a guarantee for life. They come with the flexibility of payment so that you can choose the periodicity at which you want to pay as per your requirements.
(The author is Head Investments, Policybazaar.com)
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