The biggest retirement planning mistake anyone makes is not obtaining a lifetime source of income. You don’t want that to happen to you once you are nearing retirement, right? In order to ensure that you have enough money during your retirement, here comes the discussion of annuities.
If there’s one significant way to maintain and manage a regular income when you retire, it is none other than buying annuities. It’s the best option available in the market that ensures you get a guaranteed stream of income after your retirement. Not familiar enough with what annuities are? You must read this comprehensive post.
An Introduction to Annuity Plans
Annuity isn’t the only investment option available in the market. Despite the higher returns for other investment programs, annuities are better because they offer premium protection. And not to forget, their returns generate a guaranteed income for a lifetime. That’s what makes them a better investment option for individuals who don’t like to take risks.
Simply put, annuity planning is a sort of financial product offering a stream of income to people over a span of time, generally during retirement. It is a contract between the insurance company and the beneficiary. Once you agree to make your lump-sum payment or payments in portions to that company, you get the guaranteed payment in return over a period of time.
Outlining the Types of Annuity Plans
Depending on your requirements, you may choose the annuity plan between deferred and immediate annuities.
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Immediate Annuity Plans
These plans offer regular income payments to people after they pay the lump-sum payment to the chosen company. The insurance company invests that amount in different assets to offer annual or monthly payouts to that individual. The payment amounts are based on different parameters, like the following:
- The age
- The time when they bought the annuity
These plans reduce risks associated with financial obligations or outliving savings after retirement.
Next comes the deferred annuity plans, which offer income payments to people at a specified future date. The primary objective of this investment is to generate returns. The individual gets the payments on the mentioned predetermined date (after the deferral period). The payments are either fixed at specific intervals or variable amounts depending on the investment returns.
These annuities offer scopes of investment growth and ensure a guaranteed income during retirement. The investment account’s value within this type of annuity may fluctuate depending on the underlying investments’ performance.
The fixed annuity offers a guaranteed income after retirement. The individual gives a lump-sum payment to the company that guarantees a fixed rate of return on investment, irrespective of the market conditions.
3 Top Advantages of Investing in Annuities
The following are the top benefits of choosing annuity plans:
Advantage 1: Security
Investments in bonds and stocks are closely related to the market fluctuations. That makes it challenging for people to presume the rates. However, individuals who have invested in annuities can get a guaranteed rate of return. These are secure plans offering beneficiaries peace of mind.
Advantage 2: A Guaranteed Income
In India, people are more worried about outliving expenses. Annuities for them, thus guarantee a lifetime income. Such plans are best for the risk-averse individuals.
Advantage 3: Excellent Features
If there’s any plan that ensures tax-deferred growth, it is the annuity plan. Tax-deferred growth increases an investment’s value over a period of time. People may build a corpus without paying any taxes until they get the payouts.
Tips to Consider Before Investing in an Annuity Plan
Annuities offer financial security after retirement. Here’s presenting the top considerations before you buy one:
Health and Age
Annuity plans may have age and health requirements, such as minimum and maximum age limits or medical underwriting requirements. Check each insurance company’s criteria to determine if you are eligible for the annuity plan.
Annuities provide various payout options. So, you need to determine your financial requirements and objectives before choosing the right payout option.
These plans ensure tax-deferred growth. But after you get payments, you need to pay the taxes on your income depending on the salary scale. So, evaluate the cost and choose the plan accordingly.
Consider the financial situation as well as the budget in order to fulfil the commitment needed for the plan.
Category of Annuity
The next thing to determine is the annuity type (deferred or immediate & variable or fixed annuities). Each type has unique benefits and features. Look for the one that suits your requirements.
So, you have discovered the basics concerning annuity plans. It’s time to choose the right option from the market.
How long will the money stay in the fixed annuity?
In fixed annuities, the individual needs to pay income for a particular period of time (between 5 and 30).
What’s the shortest time for the annuity?
The shortest time for any annuity is one year.
Can you withdraw the annuity?
Some annuities offer penalty-free withdrawal of the total amount that you have invested initially. They are known as the original premium. So, you may withdraw 10% of the amount of your premium without paying the penalty. Individuals can make this type of withdrawal once every year.