Considering the precarious financial conditions today, retirement planning has taken center stage in these incongruous times, especially for private sector employees who are not assured of a fixed pension by the government.
It becomes hard to cope with day-to-day expenses without a regular flow of income in retirement. Here comes an annuity plan that offers a stable financial option for the golden years.
What Makes One Prefer the Annuity Plan?
Unlike government jobs, the private sector cannot boast a fixed pension system, and therefore, many professionals today are confused as to what to do about their future. Financial experts recommend investing in annuities as a best bet to fill in the gaps.
An annuity allows you to make investments in a systematic manner during the working days, thus ensuring regular contributions or a single premium payment. At retirement, the investment becomes a fixed source of income and one is assured of never running out of funds anymore.
How Does an Annuity Help in Retirement Planning?
Annuities form the backbone of financial security post-retirement, asserts Aditya Mal, Future Generali India Life Insurance. They provide income until one dies and hence eliminate the fear of outliving one’s savings.
An annuity is simply a contract between you and an insurance firm in which you pay money for deposit guarantees to be paid to you at a later date. There are essentially two types of annuities:
- Immediate annuity – You receive payments almost immediately after making a single lump-sum deposit.
- Deferred annuity – You invest in over time and begin paying out funds later.
How to Choose the Right Annuity Plan?
At retirement, many individuals face a dilemma—should they take their retirement fund as a lump sum or convert it into an annuity? The decision depends on three key factors:
- Your Financial Needs – Do you require a large amount immediately, or a steady income over time?
- Your Lifestyle – Will you manage a lump sum wisely, or do you prefer disciplined payouts?
- Your Risk Tolerance – Are you comfortable with market-linked returns, or do you prefer guaranteed income?
While a lump sum provides immediate liquidity, it carries the risk of rapid depletion. On the other hand, an annuity ensures long-term financial discipline and security.