Planning a safe and secure retirement with annuity plans

Retirement planning is one of the most important elements of building your financial portfolio and must be done with utmost patience and dedication. Often, several complex investment tools and financial terms that you may not understand may the entire process of retirement planning torturous. Over and above this, the lives of people in today’s time has become so hectic that they hardly get enough time to study about various products and investment in those that rightly meet their specific needs and requirements. This is an important reason why most professionals these days prefer simple and easy to understand products that promise secured returns for a maximum time. This is why annuity plans have become the most preferred choice for retirement planning not just amongst people are soon planning to retire but also amongst people who have just started their careers.

Annuity plans

Annuity plans or often termed as pension plans are one such investment product that can be bought during anytime of your career irrespective of your age. While most people choose to buy these close to their retirement age, many even buy these plans during their mid-career, as their primary objective is to secure their assets. Under annuity plans, the product helps you to accumulate corpus for a particular period with which you can later buy an annuity. However, if you already have a corpus ready, you may directly buy an annuity and start receiving pension. These two types of annuity plans are known as Deferred and Immediate annuities, respectively.

Under annuity plans, after paying a lump sum amount during the accumulation phase, you get regular pension as long as you live or for a limited time period, as per your policy terms and conditions. Annuity plans are mostly designed keeping in mind long-term retirement needs of the customers with a sufficient corpus investment. Under an annuity plan, you can lock in the rate of interest rate not just for a period of 10/15/20/25 years but your entire life.

Types of annuity plans

Under Deferred Annuity plans, the customer has enough time to accumulate a corpus by investing for a pre-defined period. Once the corpus is sufficient, the accumulated amount can be invested to earn premium. The amount required to build the corpus can be accumulated as lump sum or in a systematic manner by paying defined premium for limited number of years. Under deferred annuity plans, the 1/3rd of the accumulated corpus can be withdrawn with having to pay tax on it while the remaining 2/3rd has to be used to buy annuity that in return will provide you with steady monthly income. When planning to buy deferred annuity plans, it is always advised to start investing early so that you can accumulated decent corpus for investment. Follow the rule; the longer you leave your money to grow, the better will be the returns.

Immediate annuity plans are best for customers who already have a corpus ready for investment and are already amidst their retirement age. Under immediate annuity, you invest a lump sum amount to with the insurer by investing in an annuity plan and in return, you start receiving monthly payment like an income stream. Unlike deferred annuity, there is not any accumulation phase in immediate annuity plans. Annuity plans can either be fixed or variable in nature depending up on whether the payout is a fixed, linked to the market performance or is a combination of the both.

Buy online to earn extra pension

When planning to buy annuity plans, make sure you buy these plans online as there are many benefits. While you can compare the various plans available online, you can also easily go through the terms and conditions along with the various features and benefits. However, one of the most sought-after advantages of buying annuity plans online is that you earn extra income in comparison with offline plans. For instance, say you invest Rs 10 lakh in an immediate annuity plan that guarantees lifetime pension to you and your spouse and return of amount invested to your nominee. Now, if you buy this plan online, you will receive Rs 2,000 more per year and over a period of 30 years, you receive approximately Rs 60,000 more than offline plans. When buying annuity plans online, the customer receives approximately 3% extra pension on the corpus invested.

(The author is Head- Investments, Policybazaar.com. Views expressed are personal)