Choosing the right retirement plan can help you in planning your future goals in an efficient manner.Retirement is an important phase of everyone’s lives. While we might not be able to control our age, but we can definitely plan our future for a safe and secured retirement. After working hard for a good number of years, it is obvious that you long for a peaceful and stress-free retirement. With increase in cost of medical expenses, inflation rate etc, it is pertinent to have a concrete plan to enjoy your second innings to the utmost. In order to do so, you should have a sound financial plan that can support you in a manner that you enjoy the same lifestyle, which you had been living when you were earning.
Choosing the right retirement plan can help you in planning your future goals in an efficient manner. One such good option is annuity. In an annuity plan, you need to pay a lumpsum amount to the insurer to build a corpus that’s available to you post retirement. This is paid through fixed payouts which can be monthly, quarterly, half-yearly or annually. You can choose the payout option as per your needs.
Why should you invest in annuities?
Annuity plans are a better option to invest over other retirement plans because they provide a guaranteed income not just for 10-15 years but for a lifetime. Also, the interest rates of annuity plans are locked-in for your entire life. In annuity plans, the rate of return varies between 5-6.2% and it remains constant. Therefore, there is no reinvestment risk involved unlike bank FDs. Moreover, SBI Fixed Deposit Rate in 10 years has consistently fallen from 8.5% to 5.4%. Considering these trends in the last decade, interest rates are further expected to fall. Another advantage of investing in annuities is that there is no investment cap unlike other retirement plans. In an annuity plan, you can invest as much amount you want to.
You can also choose different types of annuities depending upon your age group. There are two basic types of annuity plans – immediate annuity and deferred annuity. Under immediate annuity plans, you need to invest a lumpsum amount and you can start getting pension from the next month. These plans are suitable for people who are about to retire. In addition, there are many variants of immediate annuity plans such as joint life option with return of purchase price wherein you can get income for lifetime and in your absence, your spouse gets pension. On the death of spouse, the premium invested is returned to the dependents as legacy amount. Hence, annuity is a good option to invest so that the future expenses of your loved ones are taken care of in your absence. Over the years, many variants have been introduced to suit the needs of customers.
The second type of annuity plan is deferred annuity wherein you can invest for a fixed period and at the time of retirement, you start getting pension. Deferred annuity is more suitable for customers who are yet to retire in 5-10 years. For example, if you invest an amount of Rs 20 lakh at the age of 50 years for a period of 10 years, at the age of 60, you will start getting an annual pension of Rs 2,16,776. Moreover, another advantage of investing in deferred annuity is that your interest rate will be locked in as and when you start investing.
Online buying offers plethora of benefits
Investing in these plans online is always a better idea because of a host of benefits. The biggest benefit of investing in annuity plans online is that you get extra payout as compared to offline buying. For example, if you invest a lump sum amount of Rs 20 lakh in immediate annuity online, you will get a an annual pension of Rs 1,27, 600 for 40 years. Whereas, if you invest offline, you will get an annual pension of Rs 1,23,600 for 40 years. Hence, you are getting Rs 1.6 lakh extra payout if you invest online.
Secondly, there is no commission involved unlike offline buying. Thirdly, there are no hidden charges when you buy online. There is full transparency as charges if any are told beforehand so that you know what you are buying. Thirdly, you can compare a lot of plans online, know their features and choose the one that best suits your requirements. Lastly, online buying involves a lot of ease. There is no hassle of meeting an agent. Customers only need to choose the plan, make payment and the policy is issued instantly.
Take note
Before investing in an annuity plan, you should asses your life goals. Take inflation rate, healthcare expenses, lifestyle expenses etc into account before investing in annuity so that you don’t have to worry about expenses post retirement. Make sure that you have a clear estimate of your pension requirements so that you don’t have to compromise on your current living standards.
(By Vivek Jain, Head-Investments, Policybazaar.com)
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