Retiring Soon? Here's Why You Should Buy an Annuity Plan

What Is an Annuity Plan?

An annuity plan is a simple retirement plan from an life insurance company. You make payments to the life insurance company in lump sums or regular payouts. In return, they give you regular income for life or for a set number of years. You can buy an annuity plan before retirement and choose how you want to get this income—monthly, quarterly, half-yearly, or yearly. It is a helpful tool for retirement because it makes sure you have a fixed income.

There are two types of annuity plans:

• Immediate Annuity: You start getting money right after buying the plan. It’s good for individuals who are retiring now.
• Deferred Annuity: You invest now and get money later. It’s useful for individuals who are still working and want to plan for retirement.

There are also different styles of income:

• Fixed Annuity: You get a fixed amount regularly.
• Variable Annuity: The income may change based on market performance.
• Indexed Annuity: Income is linked to a stock market index but with some safety.

An annuity plan is a good way to make sure you can keep up with daily expenses even after retirement.

Features of Annuity Plans

Annuity plans have many features that make them valuable. Some of them are:

• Safe Investments

  
  

  Fixed annuity plans are considered safe because they are not affected by market ups and downs. You may get the same amount of money every time, no matter what happens in the market.

  
  

• Financial Security

  
  

  With an annuity plan, you may get a fixed amount of money at regular intervals. This can help you plan your monthly or yearly expenses, even if you do not have a salary anymore. If you choose a joint plan, it provides income to two annuitants, ensuring payments continue to the surviving annuitant after the first one's death.

  
  

• Flexible Payouts

  
  

  Annuity plans let you choose how often you want to receive your income. You may pick monthly, quarterly, half-yearly, or yearly payouts. This helps you match your income to your needs and expenses. You can also decide if you want the plan just for yourself or for two individuals (in most cases it is for the spouse).

  
  

How Does an Annuity Plan Help with Retirement Planning?

An annuity plan might keep your savings steady and help you plan better for the future. Here are some ways an annuity plan might help you after retirement.

Fixed Income

• Gives you regular money after you retire.
• You can choose how often you get paid: monthly, quarterly, half-yearly, or yearly.
• You and your spouse can get income for life.
• This helps in managing day-to-day expenses, bills, groceries, and medical needs.

Tax Benefits

• You can claim a tax deduction of up to ₹1.5 lakh per year, in case of old tax regime on annuity or pension plan contributions under Section 80CCC of the Income Tax Act, if opted for an old tax regime.
• The money grows tax-free until you start earning income.

Rate of Interest

Fixed Annuity

• You lock in a fixed payout amount at the time of purchase.
• The payout remains consistent throughout the annuity period.
• Your income stays the same even if market interest rates fall later.

Variable Annuity

• The payout amount fluctuates based on the performance of investments you choose (such as mutual funds).
• Income can increase or decrease depending on market returns.
• Offers potential for higher returns if the market performs well.

Conclusion

As you get closer to retirement, the importance of a stream of reliable income increases. The flexibility to be able to receive an annuity plan's payouts either immediately or at a future date after investing is a key feature of these plans, plus income alternatives in which you can receive fixed or variable income, return of capital, options for joint lives, and tax-deferred income at some point over a span of time is esthetically appealing. These features can put you in control of your everyday expenses.

FAQs

Who should consider getting an annuity?

Annuities are made for individuals who want a regular income in their retirement years. People who want their investment managed on their behalf and want financial security.

What are the different types of annuities?

The different types of annuities are immediate and deferred. Immediate annuities provide income immediately after buying them. Deferred annuities provide income later. You can also decide to be in fixed, variable, or indexed annuities based on your comfort with risk and income needs.

How do annuities differ from other retirement options?

Annuities offer assured income for life. They are long-term contracts with insurance companies. Annuities don’t need active management, while other retirement options may require regular decisions and monitoring.

What happens to an annuity when you pass away?

If your annuity has a joint life or death benefit option, the other annuitant or nominee continues to receive the income. If not, payments stop when you pass away.

How do you know how to choose the right annuity?

Choosing the right annuity starts with assessing your retirement income needs, age, and financial goals. Understand whether you have an immediate income need or a longer-term need. Depending on your comfort level with financial investment risk, decide whether the annuity you want is fixed, variable, or a combination of both. Finally, assess features like joint life plans, payout period (lifetime or set period, and tax implications (tax benefits).