Which Annuity Plan To Choose For Retirement? You Got 5 Options

Annuity plans offer customers regular payments based on when they want to receive them, the amount, and the frequency. For instance, they provide immediate, deferred, fixed, lump sum, and variable payment schemes. These plans come in handy along with other instruments in financial planning for retirement. The predictable income in annuity plans helps you budget expenses and reduces the risk of outliving savings. Annuities also offer tax benefits during the contribution phase and customisation to address future inflation risks and financial protection for survivors.

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In annuity plans, one can pay the premiums in equated monthly instalments (EMIs), quarterly, six-monthly, yearly or lump sum for a fixed period. Before choosing an annuity plan, it is also vital to consider the investment risk, flexibility, cost, inflation, beneficiary needs, etc.

Here are five types of annuity plans for investors to explore for retirement planning.

Deferred Annuity

In a deferred annuity plan, payments are delayed for a future date. It involves two phases: the accumulation or contribution phase and the payment phase, which starts at a specified date based on the customer’s preference. Deferred annuities can be fixed or variable depending on the performance of the plan’s underlying investments. Deferred annuity plans can be a great way to save for retirement and secure a steady income stream after retirement.

Fixed Annuity

Fixed annuities provide guaranteed payments at set intervals. Payments can start immediately or on a future date. These plans offer a fixed interest rate on the principal amount regardless of market fluctuations, ideal for those seeking financial stability and low-risk investment avenues. Fixed plans provide guaranteed protection to the principal and interest.

Variable Annuity

Variable annuities combine investment opportunities with pension benefits.They allow investors to allocate funds in stocks, bonds, and mutual funds through these schemes. The returns depend on the performance of the annuity plan’s underlying assets and can fluctuate based on market conditions. Variable annuities have two main phases: accumulation and distribution. Advantages include higher returns and tax-deferred growth, but the downside is that they may come with higher fees and market risks. However, they are still a great way to secure your financial future.

Indexed Annuity

Indexed annuities combine the features of fixed and variable annuities, offering potential market gains while providing a guaranteed minimum return. The returns are linked to a specific market index’s performance. Unlike variable annuities, indexed annuities often cap maximum returns and have safeguards to protect against losses.

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During the accumulation phase, the annuity grows based on the index’s performance, and during the payout phase, it provides regular income. Indexed annuities offer higher returns than fixed annuities besides protection against volatility.

Lump Sum Annuity

As the name suggests, in a lump sum annuity plan, the customer receives the entire accumulated corpus in a lump sum, the principal and the interest, after maturity. An upfront payment can guarantee an asset for heirs, aid in large purchases, or reinvest it in a lucrative avenue.