How can annuity plans offer you steady income?
You must consider an annuity plan when planning for your retirement. Everyone has expenses, bills they cannot avoid, including lifestyle expenses that are fun to indulge in. Even those who don’t have an income have some expenses. Children, for instance, receive pocket money from their parents. Even at that young age, they need money, and this need for money is the one thing that remains constant throughout life. The same is true in the golden years of your life once you retire. Your fixed income from work may stop, but will your expenses disappear?
After working hard all your life, you don’t want to be worrying about money or the lack thereof on retirement. To be able to meet your expenses, take care of rising medical bills, accomplish your retirement plans, such as travel, it is essential to have a well-thought-out plan to build a retirement corpus. An annuity plan is key here.
What is an annuity plan?
An annuity insurance plan guarantees1 you fixed regular income for the rest of your life post-retirement or a certain period if you wish. All you have to do is make a one-time investment, and the insurer will give you the payouts on retirement. You can select the frequency of these payouts - monthly, quarterly, half-yearly, or yearly.
Annuity plans in India also provide you with the option of a capital refund benefit, which is similar to the death benefit of a life insurance policy. In the unfortunate event of your demise, your loved ones will receive the amount you purchased the annuity plan for as a lump sum. So annuity plans ensure that you receive a regular flow of income when you’re alive, as well as offer financial support to your family in your absence.
The important thing to note is that your annuity income is not simply the money you invested at the beginning but also the interest you earned on that amount. The rate of interest on an annuity insurance plan depends on the insurance company you select.
Hence, an annuity insurance plan can provide three benefits. In addition to providing a regular stream of income after retirement, it can also serve as an investment and offer financial support to your loved ones if the plan has a death benefit.
Can an annuity plan be used as income?
If you plan wisely, it is possible. You must know your monthly expenses and how they might change after retirement. You also need to consider your spouse and if you have any other dependents.
Some annuity plans in India offer joint-life annuity plans that include your spouse. So that’s something you should definitely look out for when picking an annuity insurance plan. Another thing to consider is the amount of investment you’re making when buying the annuity plan. The more investment you can make, the better annuities you’ll receive in your retirement years.
An important decision to make here is when you want to receive the annuities and from when you want them to start. You can begin receiving the payouts as early as 45 years. You have the option to select a specified period like 15 or 30 years during which you want to receive the payouts, or if you can, opt for the lifelong option.
Some annuity insurance plans may also offer the flexibility to top up your plan for increased benefits. If you find a good annuity insurance plan that offers all these benefits and suits your needs, it is possible to use your annuity payouts as steady income post-retirement.
It is crucial to note that your retirement plan should not just rely on one plan or scheme. You should have a retirement corpus of a diversified portfolio, including investments, life insurance, annuity insurance plan, etc. Since you’re not going to work again and earn direct income, you should ensure you have multiple sources of passive income for retirement, all of which can together be sufficient during your golden years.
Deferred vs. immediate annuity
Annuity plans in India are of two types - deferred and immediate annuity. Deferred annuity plans have a period (gap) between when you make the initial investment and when you start receiving the payouts. This is a great option if you are not close to retirement but still want to be prudent and start planning.
Immediate annuity plans start giving you the payouts immediately after you make the initial investment. So, if you are about to retire, an immediate annuity plan is the way to go. This way, there won’t be a gap between retiring and receiving payouts; you’ll never face a time without a fixed income.
When you buy an annuity plan, you can discuss in-depth with your insurance provider to determine which option suits you better, along with other features and benefits.
A carefully planned retirement corpus with a good annuity insurance plan will ensure that you don’t suddenly need to become financially dependent on your adult children or anybody else. It will also help keep you safe from landing in situations where you need but don’t have money, such as emergencies.
Tata AIA Life Insurance has designed the Smart Annuity Plan (UIN-110N150V05) keeping in mind all your needs. It offers you the flexibility to pick everything based on your preference - immediate or deferred, payout term, premium term, etc. The Tata AIA Life Insurance premium payment can be made as a single payment, and there is no maximum cap on the annuity payout. Moreover, you can opt for a joint-life annuity plan to include your spouse in the plan.
Two unique benefits offered are the top-up option and loan facility. With the top-up option, you can choose to increase the benefits you receive under your annuity plan. The loan facility allows you to avail of a loan against your annuity insurance in case of financial emergencies.