Being financially stable post-retirement is a challenge we’ll all have to face at some point in our lives. Have you thought about what age you would retire, or the corpus you would need to meet your daily expenses, EMIs, and medical emergencies once you no longer earn a steady income?

Post-retirement financial planning needs to be meticulous and requires your unwavering commitment. The sooner you get on the job the better.

Set goals that will help you focus on how much you will need post-retirement and start saving and investing accordingly. Take into consideration all your liabilities and expected market inflation. People seek and compare various retirement savings options that secure their interests the best.

Annuity plans are one such option. Annuity is a financial product or a contract with an insurance company from which you receive a guaranteed income from your retirement till the end of your life.
Here we will look at the difference between deferred and immediate annuity plans.

Immediate Annuity

An immediate annuity plan is designed for those who want to start their payout immediately after retirement. It can be purchased for a lump-sum amount that grows through accruing interest over time.

Once the insurance provider or company receives the premium, payment disbursal is done to the annuitant as quickly as a month or upon an agreed period of time. The premium amount is distributed into a series of payments that the annuitant receives after retirement, as long as he or she is alive.

This type of annuity is beneficial to those who require an income at the earliest post retirement. The withdrawal benefit is based on a person’s age and gender. Annuity holders with good health and long life genetics reap ample benefits from the lifetime withdrawal plan. You can avail this plan as an individual or as a married couple. The plan continues even if one spouse dies.

Deferred Annuity
This type of annuity is a savings plan where the premium is accumulated with interest and then can be withdrawn after a set period of time. The waiting period is based on the type of plan and can be anything between three to ten years. During this period, the premium earns interest and the total sum grows. The insurance company sets the interest rates that you must agree upon when purchasing the policy.

The cumulative amount is not taxable; however, you will need to pay taxes once you start to withdraw the money. Once your premium amount matures or the waiting time span is over, you can either withdraw the money or transfer the money into a new annuity. Transferring the money in this way does not incur any additional tax.

You can also choose to convert the deferred annuity into an immediate annuity plan. Many people purchase a deferred annuity policy at an early age and then, as retirement nears, convert them into immediate annuity plans.
If you are looking for a safe investment option, you have the choice to opt for a Fixed Indexed Annuity. In this type of deferred annuity, you earn a rate of interest based on the market’s performance of an external index. This way, you can protect the principal amount from sudden market changes and downward trends. The payment plans are set and do not change when actual payment disbursal begins, irrespective of prevailing market trends.

Consult a financier and perform a thorough market study about annuities before you purchase any plan. Ask questions about each insurance company’s payout plan, as payout on annuities depends on whether an individual has opted for a fixed or variable income.

One of the biggest benefits of an annuity is that your investment is exempted from tax if you withdraw only 25% to 33% of the amount at a time. Furthermore, the income is not liable to taxes if the amount falls below tax slab limits.
Before you decide to purchase your retirement plan, read through the policy details carefully, and also perform a market research before making any investments.

The author is CEO, BankBazaar.com