Retire in the comfort of money

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With proper planning, annuity options could help provide financial security in retirement

Retirement is a word that scares many. The very idea of ​​living your life with little or no income in a society where everything is getting more and more expensive from year to year is scary if you haven’t planned well.

On the flip side, if you have a solid financial plan and you have an assured and constant flow of income without any effort on your part, retirement can also be an enjoyable and rewarding experience.

You can focus on your family, devote time to your hobbies, travel, spend quality time with your grandchildren, etc. The idea is that if you have secured your life after retirement, you can use your time to do the things that you have missed due to the daily grind of your hectic work life up to this point.

And, with ever-increasing medical inflation and longer life expectancies, it has become even more crucial to plan wisely for life after retirement.

Interest rates on bank term deposits (FD) and the Public Provident Fund (PPF), the two most popular long-term savings instruments, continue to fall and are at their lowest for a decade; it’s time to consider switching to products with guaranteed returns. The Public Provident Fund, which offered 11 to 12% interest per year in the 1990s, now offers only 7.1% interest. Likewise, the interest rate on bank term deposits fell from 8.5% in 2014 to 5.4% in 2020.

Annuity plans allow you to receive regular payments for life after investing just once in a lump sum. Regular payments can function as a pension and can be used to cover your basic expenses and also to maintain the lifestyle you are used to.

Some annuity plans continue to pay even after your death and pay the same amount to your spouse. Additionally, many of these plans also return the full amount invested after the beneficiaries die to their applicants, who could be your children. So you don’t have to worry about their financial future either.

Let’s take a look at some of the different types of annuity plans available in India.

Immediate annuity

Under this plan, you start receiving payments immediately after making the initial lump sum investment. It is a good idea to opt for this type of annuity if you are nearing retirement age or have just retired. If you have invested in various investment vehicles for your retirement fund throughout your life, you can use those savings and opt for a retirement annuity plan to start receiving regular payments every month, quarter or year, according to your needs.

Deferred annuity

In a deferred annuity, the money is invested for a specific period before payments are made. This is only an option for those who are still far from retirement.

Fixed annuity

Under fixed annuity plans, the amount of regular payments is fixed for the entire duration of the annuity plan. Moreover, in such shots, the duration of the shot is also fixed. Thus, if the insured dies during this period, the insured’s nominee will receive the fixed payment.

Joint annuity

In reversible annuity plans, the annuity is paid to the spouse throughout his life after the death of the annuitant. This is a great option for those where the couple depends on a single income. This way, even after the death of the earning member, the future of the other member would be secured.

Return of purchase price

While the annuity plan will provide you with fixed and periodic payments throughout your life, the insurance provider will also return the original amount that was used to purchase the annuity plan to the nominee after the death of the annuitant.

This option is available for both Single Life and Common Life variants. In the latter case, you will first receive the regular payments. After your death, your spouse would receive the payments. And finally, the initial amount of the investment will be received by the nominee after the death of your spouse.

Among the service providers in the market, these plans offer you a range of returns.

For an investment of ₹ 10 lakh, a 55 year old can expect annual returns of around 5.35% to 6.3% until the age of 80, after which the amount invested reverts to the individual. Likewise, a person starting an annuity at age 60 can expect returns of between 5.4% and 6.28%, depending on the provider’s choice.

Block returns

The advantage of an annuity plan is the ability to lock in specific returns for a long time, vis-à-vis the PF or FD options which may depend on the vagaries of the market or the government decisions of the day.

Thus, it can be said that annuity plans are designed to provide you with a comfortable life after retirement by providing you with financial security.

They are one of the most secure investment tools with a lifetime guarantee. They come with payment flexibility allowing you to choose how often you want to be paid according to your needs.

(The author is Head-Investments, Policybazaar.com)

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