Annuities are getting more popular now as they offer guaranteed income and people are looking for smarter ways to manage retirement savings.
‘Outlive your life and not your savings’. This quote talks about the key need for retiring in peace: having a substantial corpus that takes care of daily and emergency expenses in the absence of a regular income. Developing that corpus is a long-term goal for almost every salaried individual, but succeeding in the goal isn’t likely to happen by accident. It takes proper planning with enough knowledge at an early stage of your life to start investing in your retirement funds.
Now the question arises, how prepared are Indians for their retirement age? As per a retirement survey by HSBC future of retirement study, although more than 70% of working age people desire to lead a comfortable retired life. Out of that number, only 1/3rd are actually putting aside money to fund that stage of life. The other 2/3rd expect to depend heavily on their children with a belief that their children will take care of them when they grow older and, therefore, they don’t consider investing in their own financial future.
A retired person’s most important concern is regular income. An annuity product is a financial tool which gives you regular revenues throughout your life. Annuities are getting more popular now as they offer guaranteed income and people are looking for smarter ways to manage retirement savings. People looking to make an investment in terms of their financial future can opt for annuity products, sold by life insurance companies.
Types of annuity
Annuity can be bought at any time in your life. Some people choose to buy it when they are close to their retirement age, while some people prefer it during their mid-career who wish to secure their assets. In life insurance, there are products that help you accumulate a corpus with which you can buy annuity later, but if you have ready corpus, you can buy annuity immediately. These are called deferred and immediate annuities, respectively.
Deferred annuities essentially help people to save for the future where they let you invest regularly to first build a corpus and one you retire you get pension from this amount. It requires customers to pay premium which plans can be systematic or one lump sum premium. When the tenure period ends, the accumulated money is used to buy an annuity, although in deferred annuity plans, only 1/3rd of the corpus can be withdrawn tax free and the remaining 2/3rd will be have to be taken as compulsory annuity turning into steady monthly income. It is always advisable to invest in your early stage so that one has enough corpus for the future. The longer you leave your investment, the better it will grow. For instance, Rohit is 35-year old and is planning to have a financially secure future for his later years. If he pays Rs 6,000 as monthly premium for 15 years, the fund value he will get will be around Rs 17,00,000 at the return rate of 8%.
Immediate annuity plans are for people who want to invest at a later stage of life. With an immediate annuity, you hand over a lump sum cash to the insurance company and in an exchange the company starts making you monthly payment like an income stream. It is a great choice for those people who are near their retirement stage and have a corpus ready with them to buy an annuity immediately. They differ from deferred annuities as they do not have an accumulation period. After an annuity is chosen, the distribution begins 12 months after the purchase.
As per the table below if at the age of 55, if you invest Rs 50 lakh as a lump sum amount, you will get will be around Rs 4 lakh as yearly pension till the time you are alive.
The goal is not just to invest for your retirement plan; the goal is to choose the right product for your golden years which is specially designed to meet your needs and help you build a secure future. According to experts, the best way is to buy annuity is to look at the past track record of the annuity provider than being carried away by product features or promotions.
(By Santosh Agarwal, Chief Business Officer-Life Insurance, Policybazaar.com)