The retirement years can be a wonderful period in life when planned properly. You can sit back, relax, travel, rest and do whatever you want with all the free time you have. But all this is possible only if you invest smart ensuring that you maintain a balance between conservative investments and aggressive returns.
One of the best ways to ensure a guaranteed income for life (or for a certain stipulated duration) is to buy annuity plans. They do not offer a live cover but they protect you from outliving your own resources.
Here are a few things you need to know about annuity plans before you consider them or invest in them.
Types of annuity:
Deferred annuity: A deferred annuity is one where you first build a corpus after which you use the same to buy an annuity at the time of retirement. Pension plans of life insurance companies, however, need you to annuitize at least two-thirds or 66.67% of the corpus on maturity. The remaining one-third can be taken as a lump sum.
Immediate annuity: Immediate Annuity Plan is where you simply take your money and buy an annuity from any insurer that provides immediate annuity. You pay once to ensure guaranteed income for your lifetime. This way, you can secure lifetime income for your spouse, even if you are not around and leave a legacy for your family through the return of invested capital on your demise.
An annuity guarantees regular payments to you for life after you invest a lump sum. You buy an annuity product at a prevailing rate, which gets locked. So, the payouts are fixed and guaranteed. The rate will depend on factors such as your age, type of annuity chosen and the amount.
The younger the customer, the lower the rate of annuity since the payout will be for longer. Annuity rates mostly depend on the long-term interest rates in the market. The rates are also sensitive to the economic scenario and the insurer will alter the rate based on future projections. But remember that once bought, the rates are for life.
Annuity plans can also be divided on the basis of how the purchase amount is returned. One type of plan returns the purchased amount (principal) to the nominee on the death of the annuitant, and the second offers a higher rate of payout.
In case you have dependents or a spouse, you can choose the joint life survivor annuity, which pays you an annuity and on your death, continues the payoutsto your spouse for life. But here also you can choose the return of purchase price for the beneficiaries.
The routes and choices might vary for each investor, but the bottom line of an annuity plan is to ensure that it helps you build a regular stream of income. But remember that this is not a quick form of investment and you should commit fully into it. Once you annuitize, you cannot liquidate your investment. Also remember that the annuity income is taxable.
The aforesaid article presents the view or an independent writer who is an expert on financial and insurance matters. PNB MetLife India Insurance Co. Ltd. doesn’t influence or support views of the writer of the article in any way. The article is informative in nature and PNB MetLife and/ or the writer of the article shall not be responsible for any direct/ indirect loss or liability incurred by the reader for taking any decisions based on the contents and information given in article. Please consult your financial advisor/ insurance advisor/ before making any decision.
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