Retirement and annuity pay-outs – what you should know?
Retirement is that phase of your life when you stop earning actively. Though your income dries up, your expenses don’t. To fund these expenses you need a regular source of income. This regular source of income can be provided by annuities that are regular pay-outs paid for as long as you live. Usually, annuity pay-outs happen after you retire but that is not all there is to it. There are various things to know about retirement and annuity pay-outs. Let’s find out what these are –
What is annuity?
Annuity, in simple terms, means a fixed regular income which is paid to an individual throughout his/her life.
Which investment avenues promise annuity pay-outs?
Annuity pay-outs are promised under two types of investments –
- Life insurance pension plans and
- National Pension Scheme offered by the Government of India
What are the different types of annuities?
Annuities can be of two types –
- Deferred annuities
Under these types of annuities, you get an accumulation phase during which you can invest to create a corpus. You can choose the accumulation tenure and pay an amount over the duration. Once the accumulation phase comes to an end, the plan vests or matures. Vesting of the plan means that the annuity phase is starting. In the annuity phase, fixed annuity pay-outs are paid from the accumulated corpus.
- Immediate annuities
Under immediate annuity plans, there is no waiting period before annuity payments start. You pay a lump sum amount to purchase the plan. Immediately after the plan is purchased, annuity pay-outs start from the next month.
Life insurance pension plans come in both variants of deferred and immediate annuities. National Pension Schemes, however, are deferred annuity schemes where you first invest and then get annuities.
Which annuity is suitable for you?
The suitability of the annuity depends on your life stage. If you are young and retirement is 10 to 20 years away, deferred annuity plans are better. You can save affordable amounts every year to build up a sizeable corpus for your retirement. Later on, when you retire, you can avail annuity pay-outs.
Immediate annuity plans, on the other hand, are suitable for individuals who have already retired. They can invest their lump sum savings in an immediate annuity plan and get regular incomes every month, quarter, half-year or year as is suitable. The annuity pay-outs would continue throughout their life providing them with a steady source of income after retirement. Moreover, immediate annuity plans also have different pay-out options. They can be taken on a joint life basis too where annuities are paid till the lifetime of the surviving spouse even if the primary annuitant passes away.
Why is annuity beneficial?
Annuities are beneficial because they promise a source of regular income even when you retire. They are promised for your lifetime and take care of your expenses even in your golden years.
So, understand the concept of annuities, their types, suitability and benefits and then invest in an annuity plan to financial secure your life after retirement.