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Retirement is a word that scares many. The very thought of living your life, with a reduced or no income in a society where everything becomes more and more expensive with every passing year, is a scary one if you have not planned for it well. On the other hand, if your financial plan is sound and if you have an assured constant stream of income coming in without any effort on your part, retirement can be an enjoyable and fulfilling experience as well. You could focus on your family, give time to your hobbies, travel, spend quality time with your grandchildren and so on. The idea is that if you have secured your after-retirement life, then you can use your time to do those things that you missed out on due to the daily grind of the hectic work life till that point.
And with ever-increasing medical inflation and higher life expectancy, it has become even more crucial that you plan for the post-retirement life wisely. As per a report by committee on household finance set up by the Reserve Bank of India (RBI), over 50 percent of Indians above age 65 are expected to be depending on their children instead of their own wealth even as far as 2031. So how do you avoid this situation and ensure a constant stream of income for yourself even after you retire? This is where annuity plans come in and can help you free yourself of your financial worries.
In simple words, annuity plans enable you to receive regular payments for a lifetime after investing only once in a lump sum. The regular payments 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 payments even after your death and pay the same to your spouse. Moreover, many such plans also return the entire invested amount after the death of beneficiaries to their nominees, which could be your children. So you need not worry about their financial future either.
Immediate annuity: Under this plan, you start receiving payments immediately after you make the initial lump sum investment. It is a good idea to opt for this type of annuity if you are approaching the retirement age or have just retired. If you have been investing indifferent investment instruments in your life for your retirement fund, you could use those savings and opt for an annuity plan at retirement so you start receiving regular payments every month, quarter, or year, as per your requirement.
Deferred annuity: In a deferred annuity, the money is invested for a specific period before payments are made. It is only an option for those who are still away from their retirement.
Fixed annuity: Under fixed annuity plans, the amount of regular payments is fixed for the entire duration of the annuity plan. Moreover, in such plans, the duration of the plan is also fixed. So if the insured dies during this period, the nominee of the insured will receive the fixed payout.
Variable annuity: In these annuity plans, the payout is not fixed and is linked to the market. There is more risk involved in such plans. Depending on the performance of the market, your returns could sometimes be higher, and sometimes, they can be lower. This would be reflected in the regular payments that you would receive.
Joint life annuity: In joint-life annuity plans, the annuity is paid to the spouse during her entire life after the death of the annuitant. This is a great option for those where the couple depends on one income. This way, even after the death of the income-earning member, the other member’s future would be secured.
Annuity with return of purchase price: While the annuity plan will ensure fixed and periodic payments for you during your entire lifetime, the insurance provider would also return the initial amount that was used to buy the annuity plan to the mentioned nominee after the death of the annuitant. This option is available for both single life and joint life variants. In the case of the latter, you would first receive the regular payments. After your demise, your spouse would receive the payments. And finally, the initial amount of investment will be received by the nominee after the death of your spouse.
So one can say that annuity plans are designed in a way to give you a comfortable life after your retirement by offering you financial security. These are one of the safest investment tools with a guarantee for life. They come with the flexibility of payments allowing you to choose the periodicity at which you want to be paid as per your requirements.
(The author is head of investments at Policybazaar.com; views expressed are personal)
07 May, 2021