Retirement is not just about the end of your full time job’s innings. Its the beginning of a life of comfort and convenience. Without bidding good bye to some of the usual requirements of your life, plan an early investment to make things easier. With a multitude of investment avenues available, you don’t need to develop any more crease on your forehead. Keeping the spotlight firmly on annuity plans while offering a comparative analysis against other investment options, let’s have a closer look.
Annuity plan Vs. other investment plans
Whether to opt for an annuity plan or other investment plans depends mainly on your age and priorities. The basic premise of annuity plans are to ensure a steady stream of income to meet your expenses after retirement. Other investment plans in the form of investment in shares, bonds or mutual funds have growth as their basic premise. Mutual Funds and stock investments also carry an inherent risk element. The more your age, the lesser time you have till retirement to recover from the setbacks in the market. Assured returns and a less risky approach is thus preferable. Bonds do offer that to you but an annuity plan comes with other features, in addition.
Annuity entails an initial payment of a part of the total money accumulated over years through your investments and the interest accrued. The rest of the money serves as a principal to give the individual income in the form of interest at regular intervals for a particular duration of time, that continues till death. In addition, if the person dies before availing income from the annuity plan, his heirs would receive the savings and the interest generated so far. Annuity plan requires a long term approach. You need to pay a penalty if you seek to get a portion of your savings within a few years of availing the plan and the penalty stands quite high at nearly 2 percent. Further, the income on annuities earns tax once your pension starts.
Annuity plan types
1. Pension with savings return
Those availing for this plan gets pension for life but can still leave the principal amount to be paid to the kin after their death. Its ideal for people who looks out for a comfortable lifestyle post retirement along with a few savings for their family.
2. Pension for life without a payout of savings
This plan allows to get a large sum as pension but, family members receive no payout after death of the person availing the annuity. The only benefit here is, the pension payout is comparatively higher in amount.
3. Joint pension plan with spouse
This plan allows you to take care of your as well as your spouse’s expenses. Even after the death of the person availing annuity plan, the spouse continues to get 50 percent to 100 percent of the pension, the annuity buyer used to receive. The percentage is decided upon by the annuity buyer.
4. Pension with an incremental benefit
Inflation does take a toll on the purchasing power of the sum you receive as your pension. A hike of 3 to 5 percent every year on the pension amount serves as a safeguard against inflation. You can avail it, in case inflation is a major issue of concern for you.
5. Higher pension for fixed duration
This annuity plan works well for those who seek a higher pension payout for a fixed duration of time before settling for a comparatively lower amount. A higher pension can act as a supplementary income in the period just after your retirement, in case you have certain obligations to meet. The annuity plan does come to your rescue in such a scenario.
Choosing the right annuity plan
Annuity plan is recommended for those who are reasonably comfortable with their finances and do not need to make use of their savings to take care of the expenses in general. These are well suited for people more than 40 years of age. Let’s take a look at a few factors that might help you to choose the right annuity plan.
1. Assess your needs
Invest more or begin early for a higher pension payout. The choice of annuity plan depends on a clear understanding of your financial position and the way you see it shaping up at the time of your retirement.
2. Understand your obligations
For those needing higher payouts to support their lifestyle in the first decade or so after retirement, an annuity plan that entails higher pension for a fixed duration generally makes for a viable alternative.
3. Give due consideration to your spouse’s requirements
If your spouse is not financially independent, it makes sense to avail a joint annuity plan with your spouse to ensure financial security for both.
4. Choose between higher pension and savings for the kin
If you need a higher pension payout at regular intervals and the family members are doing well for themselves, you may opt for annuity without the option of payout for the family after the death of annuity buyer.