Types of Annuities
When considering retirement income plans, annuity plans can provide you with financial peace of mind by giving you regular payments after you retire. However, not all annuity plans are created equal. Depending on when you want the money, annuity plans can be categorized in simplest terms as Deferred Annuity or Immediate Annuity.
Let’s understand both.
Deferred Annuity
A Deferred Annuity is like planting a tree today that gives you fruit after a few years. If you're still working and not retired yet, this plan is made for you.
What is it?
It’s a plan where you pay a big amount (called a lump sum) or make payments over time (monthly, quarterly, annually) to the insurance company. The company holds this money and pays you a regular income after a few years, when you retire or after the premium payment term, as may be chosen by you.
Who should choose this?
People looking for post-retirement income may prefer this.
When does the money come?
You don’t get the money right away. You get payments only after retirement.
Why is it good?
It helps you lock the interest rate early. So even if rates go down in the future, your monthly income will not be affected.
What happens if something happens to me?
Many deferred annuity plans has a death benefit component which differs plan to plan. This means that if you die during the accumulation phase (before the annuity starts paying out), your beneficiary or nominee will receive a payout.Example to understand better:
Let’s say you are 55 years old. You choose a deferred annuity plan and pay ₹50 lakhs as a lump sum. From retirement age (60 years), you start receiving regular payouts as per your chosen frequency (monthly, quarterly, yearly, etc.).
Why do people like it?
People particularly like guaranteed* income plans like deferred annuity plans because they offer a safe and reliable source of income later in life, especially when it is needed the most—typically during retirement.
Immediate Annuity
An Immediate Annuity is like buying a fruit tree that gives you fruit from day one. If you’re already retired or about to retire, this plan is perfect for you.
What is it?
It’s a plan where you give a lump sum amount to the insurance company, and they start giving you regular income immediately as annuity payout.
Who should choose this?
Retired people who have money saved and want to get a monthly income right away.
When does the money come?
The payments start almost immediately. You don’t have to wait.
Why is it good?
You don’t need to think about how to manage your retirement savings. The money keeps coming without worry.
Joint Life Option:
You can choose a plan where income is paid to one person at a time—first to you, and after your passing, it continues to your spouse.
What happens if both pass away?
Upon the death of the last surviving annuitant, annuity payments will cease, and the Return of Purchase (ROP) amount, if the ROP option was selected, will be paid to the nominee.
Example to understand better:
You retire at 60 and have ₹40 lakhs saved. You give this to an annuity provider. From the selected month, you will start getting income chosen by you to manage your needs.
Why do people like it?
No delays, no market ups and downs, and regular payouts in case of guaranteed annuity plans.
Good to know:
You don’t need to worry about renewing anything or checking interest rates. It’s set and simple.
Is an Annuity Plan a Good Investment Plan for Retirement?
When it comes to retirement income plans, annuity plans are known for their safety and stability. Here are some simple reasons why many people in India prefer to choose annuity plans for retirement:
No Market Risk :
Guaranteed Annuity plans are not affected by market ups and downs. Your income remains stable.
Flexible Payout Options :
You can choose to receive your income every month, three months, six months, or once a year.
No Limit on Investment :
There is no maximum limit on how much you can pay. This is helpful if you have saved a large amount for retirement.
Long-Term Financial Security :
These plans are designed to give you income for life, so you don’t have to worry about running out of money.
Joint Life Option :
You can choose a plan that income to you and your spouse after your death.
Online Availability :
Many annuity plans can be bought online. This makes the process simple. You can also compare different options before buying.
No Reinvestment Hassle :
Annuity plans give you regular income without any extra effort.
No Hidden Charges (Online Plans) :
Most online annuity plans advertise transparency, but it is advisable to check the policy documents carefully, for detailed terms and conditions.
Annuity plans bring simplicity, comfort, and financial security after retirement. That’s why many people choose to include them in their retirement planning.
Conclusion
When planning for life after retirement, it’s essential to choose the right options for a comfortable and financially secure future. Guaranteed Annuity plans offer payouts, are immune to market fluctuations, and give you the flexibility to decide when and how you receive your retirement income.
Whether you're years away from retirement or already there, annuity plans help safeguard your financial independence. With features like joint life coverage, assured interest rates, and freedom from reinvestment concerns, they offer peace of mind and steady income, making them a smart choice for your second innings.
FAQs
Is an annuity plan good for retirement?
An annuity plan can be a smart way to get a monthly income after you retire. You pay a big amount once, and the company gives you money regularly. It is safe because the amount you get does not change even if markets go up or down. It works well if you want peace of mind and do not want to worry about managing money when you are older. That’s why many retired people like this option.
Should I put my retirement money in an annuity?
If you want money every month after retirement without thinking about the share market or interest rates, annuity plans can help. You pay once, and the company sends you fixed money for life. You can choose when and how you want to receive it—monthly, every three months, or yearly. It is a simple and steady way to use your savings. This is a good choice if you don’t want the stress of managing your money.
How much does a ₹50,000 annuity pay per month?
The monthly income from a ₹50,000 annuity depends on your age, the plan you choose, and current interest rates. Some people may get more, and some may get less. Older individuals may receive higher monthly payouts because the expected payout period is shorter. To know the exact amount, you can use an annuity calculator online. It will help you see how much money you can get every month based on what you pay and your age.
What happens to a 40% annuity in NPS?
With the National Pension System (NPS), you must use 40% of your total NPS corpus to purchase an annuity plan. This means you will get a pension after you retire, that is paid regularly. The monthly amount you are paid depends on which annuity provider and which plan you choose. 60% of your NPS corpus can be taken as a lump sum.
An ISO 9001:2015 
