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Is Annuity the Right Option for Retirement?

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August 02, 2021

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Right from the time we start earning, we think about how much money we need to save up for retirement. While most people think about their golden years and wait to hang up their working boots, not everybody plans for their retirement well in advance. Considering the high inflation rate and ever-rising medical costs, it’s now more crucial than ever to plan your finances for your retirement. When it comes to retirement planning, picking the right financial product can be confusing. Let’s explore one of the most common retirement plans in India – the annuity plan.

What Is An Annuity Plan?

An annuity plan functions as a long-term investment agreement between you and your insurer. You agree to make either a series of payments, or a lump-sum payment, and the insurer promises to provide you with periodic income payouts. Depending on the plan you choose, you can start getting annuity payments immediately or after a few years.

Once you retire, your annuity plan helps you maintain your standard of living by providing you with a regular income. You can customise your policy so that it fits your personal needs and preferences. There are two types of annuity products – immediate and deferred.

Immediate annuities, as the name suggests, provides income payouts almost immediately after you purchase the plan.

Deferred annuities, on the other hand, provide the payouts some years in the future. You can opt between fixed, variable and indexed payouts in a deferred annuity plan.

Apart from the income benefit, an annuity will also provide you with life cover. So, if anything happens to you, your nominee will continue to receive the annuity benefits. To start investing in an annuity plan, you must be at least 30.

Features of Annuity Plans

When you buy an annuity plan, you can enjoy these benefits:

  • Safe Investments

    Most people consider annuity plans as the safest retirement planning investment. The policies allow you to save for the future while providing you with guaranteed growth.

  • Financial Security

    The payouts you receive from an annuity provide you and your nominee with complete financial protection. So, once you and your spouse retire, you can both rely on annuity payments. Even if something happens to you, your nominee, who should be your spouse, will continue to enjoy the payout benefits. It ensures that both of you can remain independent even after retirement.

  • Flexible Payouts

    You decide how and when you’d like to receive your annuity payments. You can choose a payment frequency that works best for you based on your retirement needs.

How Does an Annuity PlanHelp in Retirement Planning?

Planning for your retirement can be overwhelming. But, with an annuity plan, you don’t have to worry too much. Here’s why you should buy an annuity plan to prepare for retirement:

  • Fixed Income

    The policy offers you stable income payouts for the rest of your life. Most people worry about saving up enough for their golden years. With annuities, you don’t have to worry. You can select a whole-life policy that provides both you and your spouse regular payouts until the end.

  • Tax Benefits

    As with most investment and insurance policies, you can enjoy tax benefits on your annuity plan as well. The benefits and deductions you can claim will depend on the current tax provisions and your overall income.

  • A Fixed Rate of Interest

    When you buy an annuity plan, you can fix the interest rate for the rest of your life. So, you may have purchased the policy when the interest rate offered was 6%. After ten years, even if the rate falls to 4%, you will continue to enjoy returns at the same rate as when you initially invested your money.

  • No Maximum Investment

    Annuity plans do not put a cap on the maximum amount you can invest. Other plans, like the senior citizen saving scheme and postal savings, do not allow investments worth more than INR 15 lakhs and INR 4.5 lakhs respectively. With an annuity, you can invest as much as you want to safeguard your future.
    It’s clear to see that when you buy an annuity plan, you’re making a conscious choice to protect your financial future. Annuities are an ideal retirement planning tool. If you’re above 30, you should consider adding an annuity plan to your investment portfolio. It could help you enjoy a happy retired life.

 

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Francis Rodrigues Francis Rodrigues

Francis Rodrigues has a decade long experience in the insurance sector, and as SVP, E-Commerce and Digital Marketing, HDFC Life, manages the online sales channel, as well as digital and performance marketing. He has had hands-on experience in setting up sales channels and functional teams from scratch over a career spanning 2 decades.

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Vishal Subharwal Vishal Subharwal

Vishal Subharwal heads the Strategy, Marketing, E-Commerce, Digital Business & Sustainability initiatives at HDFC Life. He is responsible for crafting and ensuring successful implementation of the overall organisation strategy.

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