3 Retirement Annuity Benefits You Need to Know.
The post-retirement years are often the golden years of one’s life. We spend all our lives working, earning, and saving - to perhaps, unwind the exhaustion and live it up in our golden years. However, simply earning isn’t enough. It would be best to have a guaranteed whole life annuity plan or an annuity scheme to safeguard your golden future.
With old age comes a lot of responsibilities and health problems.
All this can exhaust your life-long savings. This may create a financial crisis, as post-retirement, you can only rely on your saved corpus, and there is no job to supplement your income. In such situations, an annuity plan or annuity scheme will come to your rescue.
Now, you may be wondering what an annuity plan is and how it works. In this article, we will discuss annuity plans and their benefits at great length. We will also discuss the things you should do before purchasing a retirement annuity policy.
If you are looking to buy a retirement plan, you should opt for renowned insurance providers with an easily customizable policy, such as Tata AIA Life Insurance.
What's a Retirement Annuity Policy?
An annuity plan or annuity scheme is an insurance product made to help a person during their post-retirement phase of life. Insurance annuity plans ensure that you get an assured sum of money regularly after you retire.
How Does a Retirement Annuity Fund Work?
To put it simply, it works pretty much the same way as any other insurance does. You will have to invest your money in an annuity scheme, and in return, the insurer would deliver pre-decided returns. Please note that insurance providers do pool money from all policy seekers and invest it elsewhere to grow the money. This is how they can generate exponential growth in your insurance product portfolios.
Now that you know the workings of an annuity plan let's move to the types of annuity plans you could pick from.
Types of Annuity Plans
An annuity scheme works only for a certain amount of time. You can choose the period yourself — it varies from five, ten, to fifteen years.
Based on its operational timespan and the number of people it covers, we could broadly classify annuity schemes into the following types. The annuity benefits will stop only after the death of the buyer.
- Annuity plan (lifetime): This annuity scheme works for as long as the insurance annuity plan buyer is alive. The insurance provider agrees to pay a fixed sum at regular intervals for their lifetime.
- Joint life survivor annuity: This annuity scheme ensures that you and your better half receive the assured sum at regular intervals for as long as you both live.
- Guaranteed interval insurance annuity plan: Unlike the lifetime variant, you receive the sum in regular intervals for a specified time in the guaranteed interval plans. In the event a policy buyer passes away before the completion of the guaranteed period, the amount is then rewarded to their nominees for the remaining span.
- Lifetime annuity with return of purchase price: As is with any lifetime annuity policy, a buyer gets the annuity benefits. However, upon the passing of the annuity holder, the purchase price, the initial principal amount used to buy the policy instalments over the years, is returned to their nominees.
- Inflation-indexed annuity: This policy considers the rising expenses with time; however, do not confuse this for an inflation-adjusted policy. The inflation may well be over 7%, but the policy will only accommodate a 2-5% hike in their payments. With the purchase price variant in this one, your nominee may also get whatever principal amount was invested.
- Joint life annuity with return of purchase price: The policy keeps paying till the time the mutual policyholders (husband and wife) are alive. Post their death, the purchase price is handed over to their kids ( suggested beneficiaries/ nominees/ benefactors).
Benefits of Annuity Plan
- Providing a stable income source: The best part about an annuity plan is that you will not have to worry about finding a fixed and steady income source after retirement; annuity schemes will take care of that.
You will get a fixed sum at the starting of the month as part of your insurance policy’s contract. This can help you run household chores and manage daily expenses while also maintaining liquid cash ready at your disposal.
- No worrying about reinvestment issues: We live in uncertain times where interest rates on investment avenues can be pretty shaky ―one minute the market is a bear, and the other minute, it’s a bull! But, no retirees deserve to be in that uncertain, unreliable financial situation. With an annuity plan, you will not have to stress about that anymore.
Once invested in an annuity plan, you get a fixed rate of interest despite the market’s uncertain movements as part of your annuity benefits. Rest assured, knowing that your money will only grow and not decline in annuity policies!
- Relaxation in taxes: This is one of those annuity benefits that is attractive for many young investors. As you would find, various other retirement schemes are not given any tax relaxations. But, on the other hand, you do not have to pay any taxes on your annuity plan unless you withdraw the whole invested amount. Premature withdrawals can also lead to an exit load. However, that’s about it!
Now that you know the merits one could gain from an annuity plan, it’s perhaps time to buy one! However, before you make such a huge decision since it decides the course of your life, you should know a few more things about these insurance plans.
Things That You Need to Consider Before Purchasing an Annuity Plan
One thing that you should know before purchasing an annuity plan is the lack of liquidity. If you’ve bought an annuity scheme for 15 years, but you want to withdraw your money before that period, you will have to pay a fees as a fine.
We hope this article helped you find out more about annuity insurance plans and schemes. For any queries, do comment or reach out to us. Wishing you a happy, insured, and secure retirement!