Is Annuity Plan a Right Option for Retirement?

In recent years, the concept of retirement planning has become quite relevant and important. Previously, retirement planning was basically saving enough to have a financially safe future. In those days, the emphasis on investments was not that much as compared to today. This is mainly due to the low cost of living in those days. However, due to rising inflation and increased cost of living, the impact is not just felt pre-retirement but, post-retirement as well. One way you can start your retirement planning is by investing in an annuity plan. However, many people are sceptical about whether the plan is worth investing in or not. So, is it the right option for retirement planning? Read more to find out.

What is a retirement plan?

A retirement plan is a type of life insurance plan that is designed to benefit you post-retirement. In this type of plan, you get a fixed monthly income after your retirement. This income can help you stay financially afloat without facing any instability. There are different types of plans that you can invest in for your retirement. ULIPs and annuity plans are some of the preferred options for post-retirement planning.

What is an annuity plan?

Annuity plan is a plan wherein the insurer agrees to pay you a fixed monthly income once you retire. This income is based on how much you invest in the plan. You can either do investment in instalments or you could a lump-sum investment. Once you retire, the insurer will be notified about it. The following month, you will start receiving the income.

What are the benefits of this plan?

Annuity plans have numerous benefits when you are planning a financially safe retirement. These benefits include:

  1. Fixed income

The main concern when it comes to retirement is a continuous source of income. While many people tend to rely purely on their savings, it is not a smart choice. As the cost of living gets impacted due to inflation, you could end up spending more of your savings just to cover daily expenses. There is also the risk of medical emergencies. You could end up spending a chunk of your investment just on health emergencies. This could have a heavy impact on future expenses.

However, the fixed income helps you in taking care of vital expenses without having to rely on your savings. This also means your savings are safeguarded and can be used for any major expense in the future.

  • Safety from market risks

When you in certain financial instruments, the insurer puts your money to use by investing in market-listed stocks. This increases the risk of your investment getting exposed to market fluctuations. Your investments could get depleted, and so could your returns. This means you will have to reinvest in order to regain your lost wealth. However, in annuity plans, this is not the case. As these plans do not invest in the market, they are safeguarded from any type of market risks. The returns that you earn in these plans will also not get reduced in any manner whatsoever. This means that the amount you will receive in the pay-out will be what was guaranteed to you.

  • Helps you save tax

The premium that you pay towards the plan is tax exempted under Section 80C of the Income Tax Act. This exemption can be availed for premium payments of up to Rs.1.5 lakh. Similarly, the income in the immediate plan is tax exempted under Section 10(10D) of the income tax act.

In a deferred plan, the tax is levied only once the payment starts post your retirement. The investment remains tax exempted.

What are the types of annuity plans?

The following are the type of annuity plans that you can invest in:

  1. Immediate Annuity

In this plan, the payment begins after you have completed the payment cycle.

  • Deferred Annuity

In this plan, the payment is deferred to a point of time that is selected by you.

  • Fixed Annuity

In this plan, the payment is given at a fixed point without delay.

  • Variable Annuity

In this plan, the payment that you receive is varied, and the amount is not fixed.

So, when it comes to retirement, these reasons will help you understand the benefits of annuity plans. Before you invest in one, take the assistance of the retirement calculator. The calculator helps in giving you an idea about how much you should invest and what your pay-out could be.

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