Planning to Buy an Annuity Plan? Consider These 5 Important Factors.
With diminishing bank interest rates and rising inflation, people are finding it increasingly difficult to plan for their retirement. One key aspect of retirement planning is to secure a regular source of income after retirement.
Annuities can help you fulfil this goal of having a dependable income source in your sunset years, provided that you are well aware of certain important factors that can significantly impact your earnings.
What is an Annuity Plan?
Annuities are a type of insurance where the insured get a fixed amount of money regularly after retirement for the rest of their life till reaching 99 years of age. The amount can be received monthly, half-yearly, or yearly.
Important Factors to Consider Before Buying an Annuity Plan
- Age
Age is an important factor that determines the quantity of pension amount. An older person can get a higher pension amount than a person with a relatively lower age against the same premium amount.
This is because a younger person is likely to have a higher life expectancy than an older person, resulting in a relatively higher pension payout period by the insurance firm.
Therefore, you should be clear about at what age should you buy your annuity plan.
- Premium Amount
The amount of premium paid while buying an annuityplan is directly proportional to the amount of pension you will receive. Simply put, the higher premium amount will result in a higher pension.
- Type of Annuity
Annuity plans are of two types-
- Immediate Plan
Your pension starts immediately after buying the plan.
- Deferred Plan
Your pension will start after a pre-determined deferment period, such as 15 to 20 years, since the date of purchase of the plan. Generally, deferred plans have a relatively lower minimum age of entry compared to immediate plans.
While deferred plans can be good for younger people, immediate plans can be an ideal choice for people nearing retirement age.
- Annuity Options
Well-reputed firms can provide you with a wide variety of annuity options to choose from. Some of the popular options are:
- Lifetime Income
The insured person will get a regular pension until death.
- Lifetime Income with Cash-back
The insured will get a regular pension until death, and the nominee will be paid back the premium amount after the insured’s death.
- Lifetime Income with Term Guarantee
Let’s understand this with an example. Ajay bought the insurance plan with a term guarantee of 10 years, with his wife being the nominee. Ajay dies after a year of buying this plan.
Now, his wife will continue receiving his pension for the next 10 years as the chosen term guarantee is 10 years.
- Lifetime Income with Annuity to Surviving Spouse
With this option, the insured will receive an annuity till death. Upon the primary annuitant’s death, the surviving spouse will continue receiving partial or full annuity amounts as per the chosen options.
It is important to note that the amount of pension will vary depending upon the options you choose.
- Rate of Return
While the rate of return can be lower in annuities when compared to market-linked plans, the returns are stable and completely insulated from market volatilities. This makes such plans an ideal choice for retirement planning.
Once you are aware of the factors mentioned above, you can analyse your finances better and arrive at the right type of pension plan that can fulfil your retirement needs and aid you in having a happy retired life.