Annuity plans are excellent options when it comes to retirement planning. They will ensure that you have a reliable income to fall back upon. In case you are not familiar with this concept, do not fret. Here’s learning more about annuities and their crucial role in retirement planning.
Knowing More About Annuities
An annuity plan is a specific financial offering/product that enables multiple payments or income over a sustained duration. This duration can often be the remainder of your lifetime after you retire. Hence, it means transforming your savings into a regular income post-retirement.
How Does an Annuity Work?
In a typical annuity plan, you will have to furnish a lump sum amount or invest regularly with the insurer. The company will deploy your money into investments to give you returns and build up a corpus. These plans may start early on or after you retire and the schedule can be chosen as per your preferences. Income payouts may be quarterly, monthly, or even yearly, as per your requirements and the plan in question.
Types of Annuities
There are various types of annuities available today. Yet, these are some of the most preferred ones.
- Immediate Annuity: You can put in a lump sum and start receiving payments immediately from the next month. This is ideal if you’re just about to retire and need income instantly.
- Deferred Annuity: You may invest either a lump sum or make payments periodically, but the money will be paid once you retire. This is a good choice when retirement is still a few years away.
Why Annuity Plans Can Help
The key advantage of investing in these plans is financial security after retirement. Once the annuity starts rolling in, you can expect a steady income each month without worries of running out of cash. Most people desire this mental peace.
Additionally, these annuities may complement your other investments, such as PPF, mutual funds, or EPF, thereby enabling extra security at all times. Once they start paying out, unlike mutual funds, annuities are not affected by market fluctuations. This brings much-needed stability after you retire.
Things worth Noting
- Fees and Charges: Annuities often include various fees or charges. You should always be aware of them.
- Inflation: Fixed annuities usually generate a steady lifetime income, although price rises may erode your purchasing power in the future. Some plans offer inflation protection, although the investment amounts may be higher.
- Liquidity: Annuities are contracts for the long term. Once you have made your investment, it may be difficult to withdraw your money without facing penalties.
Concluding Notes
Annuities are great choices for retirement planning, without a doubt. They offer guaranteed and stable income when you need it in your sunset years. Yet, knowing the various kinds of plans and how they fit into your strategy is the vital thing to ensure from the outset. If you are unsure of the same, consult a financial advisor to help you ensure a secure future for yourself and your family.
