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Deferred Annuity Investment: Should I Include it in my Retirement Planning?

28-07-2022 |

The three different phases in life, childhood, middle age, and retirement, bring different challenges at varying degrees. It can be related to physical, social, emotional or, more importantly, financial stress. However, you cannot handle the pressure in the old age phase as you did in the first two phases of life. Therefore, adequate planning is required to manage and balance life to the best standards in retirement.

Financial planning with the right instruments can bring about an organized change in fund management. It is here that an annuity pension plan fits in! There are different types of annuity plans. Deferred annuity investment is one of the most prominent plans in this regard. Let us understand what it means to know if you should include it in retirement planning.



What is Retirement Planning?

Retirement financial planning refers to organizing your financial resources to accumulate a lump sum or make way for a regular income for retirement life. It should ideally start when you start your career. However, you can start it at any time based on your family financial commitments. Insurance providers have introduced different types of retirement solutions for the benefit of individual policyholders.



Types of Annuity Plans

Annuity plans provided by insurers allow life cover and annuity options. There are two basic types of annuity plans: the immediate annuity plan and the deferred annuity plan.

 

  1. With immediate annuity plans, you can add your lump sum amount with the insurer and start receiving regular payments immediately. It can be monthly or annual income. The period for receiving the income can be a set duration or for the entire life based on your preferences.

  2. With the deferred annuity plan, you will have to invest a specific amount regularly for a longer duration and accumulate a corpus. After the accumulation phase, you can receive the annuity as a lump sum or as regular payments based on your requirements.


Should You Include a Deferred Annuity Plan in Your Retirement Plan?



The choice of opting for a deferred annuity investment will be based on the individual financial status and requirements. For example, if you are nearing retirement and have made a corpus from your career phase, you can invest it in an immediate annuity plan for immediate returns.

On the other hand, if you are younger and have just started your career, you can invest in a deferred annuity plan by regularly allocating small amounts for a longer period.



Types of a Deferred Annuity Plan

Insurance providers offer three basic types of deferred annuity investment options. Here is a brief about them.

  1. Fixed deferred annuity: Fixed deferred annuity provides a fixed return based on your premium payments. The rate of return is decided during the policy inception. The interest earnings get deferred until the end of the term and paid if you don't make any withdrawals during the policy term.

  2. Variable deferred annuity: The funds you provide are invested in securities or government bonds in a variable deferred annuity plan. Therefore, the returns are not fixed and are based on market volatility. However, the investment is based on your age, risk tolerance and preference.

  3. Indexed deferred annuity: It can be considered a combination of fixed and variable deferred annuity plans. It is fixed because there is a guaranteed1 return based on your fund investment. On the other hand, there is also a variable return on the investment made based on the market index.

The returns remain tax*-deferred until withdrawal. Also, you have to pay surrender charges if you plan to withdraw the amount earlier than the deferred period.



Who should Invest in a Deferred Annuity Plan?

A deferred annuity plan is a viable option for people who have certain prerequisites and priorities in their financial life. Here are a few categories of people who invest in a deferred annuity plan:

 

  1. People who have a very long time left for retirement can allocate a specific amount regularly, considering the critical importance of retirement planning.

  2. People who have huge family financial commitments and cannot save appropriately seek a dedicated saving pension plan for retirement.

  3. People who are sole earning members in the family looking out for a combined solution for life cover and savings for retirement. The life cover will provide a lump sum death benefit to your nominee if you face an unexpected death during the policy term. The death benefit varies based on the terms of the plan and the insurer.

  4. People who look for cost-effective pension plans opt for deferred annuity plans. As the charges are spread over a longer period, the cost is less than other pension plans. You can use the annuity plan calculator to find an approximate amount you will receive based on your premium payments.

  5. People look for guaranteed1 additions as part of the deferred annuity plan because of the deferment period. Insurers might provide varied additional benefits for deferred annuity plans compared to the immediate annuity plan. TATA AIA deferred annuity plan is a reliable option for people looking for a return in the longer term as a part of their pension plan.



Conclusion

An annuity plan for retirement is certainly very important for a comfortable and peaceful retirement life. For a deferred annuity plan, you will have to accumulate a retirement corpus over a period paying a smaller amount regularly. The annuity will start paying for you at the end of the deferred term. You either avail it as a lump sum or as regular income.

You should opt for the deferred annuity investment if you are younger and have a long-time planning and accumulating a retirement fund. It will be a cost-effective solution for your retirement needs!

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Tata AIA Life Insurance

A joint venture between Tata Sons Pvt. Ltd. and AIA Group Ltd. (AIA),  Tata AIA Life Insurance  is one of the leading life insurance providers in India. We post everything you need to know about life insurance, tax savings and a variety of lateral topics such as savings and investments in this space. You can access and read a host of different blogs, articles and pages at the Tata AIA Life Insurance Knowledge Center or get in touch with us with any queries or questions!

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Disclaimers

  • Insurance cover is available under the product.

  • The products are underwritten by Tata AIA Life Insurance Company Ltd.

  • The plans are not a guaranteed issuance plan, and it will be subject to Company’s underwriting and acceptance.

  • For more details on risk factors, terms and conditions please read the sales brochure carefully before concluding a sale.

  • This blog is for information and illustrative purposes only and does not purport to any financial or investment services and do not offer or form part of any offer or recommendation. The information is not and should not be regarded as investment advice or as a recommendation regarding any particular security or course of action.

  • Please know the associated risks and the applicable charges, from your insurance agent or the Intermediary or policy document issued by the insurance company.

  • Every effort is made to ensure that all information contained in this blog is accurate at the date of publication, however, the Tata AIA Life shall not have any liability for any damages of any kind (including but not limited to errors and omissions) whatsoever relating to this material.

  • *Income Tax benefits would be available as per the prevailing income tax laws, subject to fulfilment of conditions stipulated therein. Income Tax laws are subject to change from time to time. Tata AIA Life Insurance Company Ltd. does not assume responsibility on tax implications mentioned anywhere in this document. Please consult your own tax consultant to know the tax benefits available to you.

  • 1Guaranteed Returns/Payouts depend on Plan Option, Policy Term, Premium Payment Term and Age at entry