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Regular Annuity vs Lump Sum - Which Should You Choose?

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January 02, 2019
Retirement is an event that denotes the end of decades of professional work, with all its schedules and time constraints. Every person looks forward to a secure retirement, when she/he can give time to long-pending personal hobbies and spend quality time with the family. However, retirement also means the absence of a regular monthly paycheck and the frequency of budgetary allocations. Given the fact that expenses will continue to pile up and may even increase, as medical bills and doctor-visits become more frequent, it is necessary to take sufficient measures so that a proper coverage is in place. In other words, it is important for you to start planning today for a secure retired life.

When it comes to retirement benefits, many insurers offer many varied plans with different features that focus on many aspects of the customer's requirements. A general choice that you have to make while comparing and eventually purchasing a pension plan is whether to opt for lump sum benefit or regular payouts, which are generally monthly in frequency. What you choose must be in sync and as per your specific requirements and long term financial goals. Both these options have their own features and must be duly compared before taking a final decision.

Many schemes, like the NPS (National Pension Scheme) have a mandatory provision for annuity. For instance, any subscriber of NPS has to essentially treat 60% of the created corpus as an instrument for annuity. This is justified also in the sense that the basic purpose of such schemes is to serve as annuity products. To allow for some level of flexibility, tier-2 account system has therefore, been created which acts like a regular bank savings account. While comparing pension plans, it is important to lay stress on the annuity component offered by the plans. Annuity may either be deferred or immediate. Deferred annuity plans are the ones that have a time period when the main fund corpus is built over years and after completion of the tie period, pension payouts in a decided frequency begin. In case of immediate annuity plans, the subscriber has to invest a one-time full payment (payable a per the premium terms) and the pension payouts begin immediately.

As far as claiming the benefits upon maturity of the plan is concerned, that is where the option of choosing a lump sum payout or monthly pension payouts comes into play. A lump sum annuity payout may seem to be a good option, especially if you wish to exercise complete control over your financial portfolio. Moreover, the factor of inflation is also important and must be considered. A lump sum payout may cushion you from the effect of inflation in the coming years as you get to retain the full amount and can then make investments as per your preferences. However, there are certain things that work in the favor of regular payouts as well. Having a full knowledge of when the income will flow in gives you a full opportunity to plan your monthly budget without any risk of over-expenditure. This is not only viable in the long run but also ensures that the investments made by you over the years serve their purpose during the years of requirement as well.

HDFC Life offers HDFC Life Pension Guaranteed Plan a single premium annuity product that provides guaranteed payouts for lifetime and ensures that you spend your golden years in a stress-free manner. For details, click on the mentioned link: https://www.hdfclife.com/retirement-and-pension-plans/pension-guaranteed-plan.

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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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