Have you heard of an annuity? Well, it is one of the pillars of planning for retirement, which involves choosing the best investment options that will ensure a steady income once you stop working. These plans ensure the same through monthly pensions and you will find them across several reputed financial institutions. Several insurers also have annuity plans which offer pensions and savings options as well. Here is a closer look at these plans and how they enable better retirement planning.
How Annuities are Crucial for Retirement Planning
Annuity plans are insurance solutions where you have to make a lump-sum payment and you will get periodic payouts every month, quarter, or year in the future. Many companies also have annuities where you can pay periodic premiums for the same throughout the policy tenure. These features make these plans ideal for retirement, enabling a steady income source after one stops working for a pre-fixed number of years or one’s lifetime. Annuity payouts are also offered to spouses/nominees of policyholders in some cases by several insurers.
Various Types of Annuities
Here are some of the common annuity plan types as observed in the market.
- Immediate- This annuity plan is the most basic one and needs the investment of a lump sum amount which then converts into monthly pensions after a pre-fixed waiting period. Most insurance companies usually provide payouts after a waiting period of one year.
- Life Annuity- Under this system, the annuity payouts are made to the policyholder until his/her demise. These may be in the form of annual, quarterly, or monthly installments, depending on the policyholder’s convenience.
- Life Annuity with Return of Purchase Price- This plan offers annuity payments till the policyholder’s demise. However, after his/her death, the amount paid initially for the policy will be returned to his/her nominee.
- Guaranteed Period Annuity- Under this plan, monthly payouts are made for a particular duration, even after the demise of the policyholder. However, once this pre-fixed time period concludes, the annuity also ceases to be paid to the policyholder or his/her family.
- Joint Life Annuity- The spouse of the policyholder keeps getting annuity payouts for his/her lifetime after the former’s demise under this plan.
- Joint Life Annuity with Return of Purchase Price- Under this system, the spouse of the policyholder receives annuity payouts for his/her lifetime, even after the policyholder’s death. However, upon the demise of both spouses, the invested amount is returned to the nominee.
Use Annuity Plans Wisely for Retirement Planning
You should check and compare annuity plans carefully across multiple insurers before making a final decision. Even though these plans may have slightly lower returns than other riskier investments, they are safe bets to earn a guaranteed and fixed income after retirement. Hence, you should start retirement planning at the earliest and consider opting for joint annuity plans to secure your spouse too. These plans also help to combat risk/uncertainty by offering future income and insurance coverage after retirement. Hence, once you receive a lump sum payout, consider deploying the same into a future annuity plan.