Seven Annuity Options you can consider before opting for a Retirement Plan

Seven Annuity Options you can consider before opting for a Retirement Plan

The value of pension depends on the annuity option that you choose. So, one needs to carefully go through the plans and choose the one that suits his/her requirement the most.

While there are multiple annuity plans are available in India, mostly companies in India provide seven different annuity options to customers. The value of pension depends on the annuity option that you choose. So, one needs to carefully go through the plans and choose the one that suits his/her requirement the most. 

Here under explained seven annuity plans mostly offered in retirement plans. 

1. Annuity with return of premium on Death : 

In this option, the annuitant gets a fixed annuity payouts throughout his/her life. On his/her death, the initial amount paid to purchase the annuity is returned to the annuitant’s nominee.

Experts say this plan is suitable for individuals who have dependents & those who want to leave something behind for their loved ones.  Worth mentioning here is that an annuitant has to pay a higher premium to buy this option compared to other annuity options.

2. Joint life Annuity : 

This is the most popular annuity option opted by investors. Under this option, an annuitant & his/her wife get pension throughout their life. Under this option, an annuity is paid till at least one of the life assured is alive.

This plan ensures that you receive a regular income throughout your life & on death, your spouse will receive an annuity throughout his/her life. Also, joint-life annuity comes with a return of purchase price option, which is again a very relevant feature as on the death of both the annuitants, the nominee gets the purchase price.

3. Increasing pay Annuity : 

This annuity option is designed to help retirees beat inflation. As we all know the cost of living increases every year due to the general price rise in the economy or inflation. So every year retirees an increased amount to maintain their standards of living. In this annuity option, the payout increases at a fixed rate annually at a predefined rate, say 5%. 

By buying this annuity option, retirees can remain assured that they will be able to maintain their lifestyle even during their golden years.

4. Level Annuity :

This plan pays a fixed amount for life. This is not indexed with inflation & is not designed to take care of the inflation aspect. This is the most simplest form of annuity offered by insurers. This plan is suitable for a person who has invested a sufficiently large corpus in his annuity plan & believes that it will be enough to maintain his lifestyle & bear all their expense despite any increase in prices.

5. Annuity for Life : 

Under this option, pension is paid monthly, quarterly or yearly, depending on the option chosen by the annuitant throughout his life. The annuity proceeds stop only on the death of the annuitant.

As average life expectancy in India is increasing one needs to be prepared for long-retired life. Under this annuity option the risk of long retired life is secured financially by the insurer. This annuity option is suitable for every individual irrespective of occupation, age or gender since it tends to give higher returns.

6. Annuity payable for Guaranteed time : 

In this plan, pension or the annuity is paid for a defined period regardless of whether the individual dies during the specified term. Annuity stops either on the annuitant's death or once the annuity term ends. If you are worried about the risk of losing out on your investment due to an early death then you can go for this option.

7. Annuity with return of Premium on Survival : 

This option offers both life & survival benefit to the annuitant. Here, the annuitant gets back the purchase price of the annuity once he completes a predetermined age. This option ensures the investor receives guaranteed payouts throughout life. After completion of a predetermined age, say 80 years, the annuitant gets back his invested amount through the return of purchase price feature with annuity continuing subsequently. The survival benefit of this annuity option can help the investor manage any unexpected medical expenses arising due to old age.

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Mutual Fund Calculator : SIP's that can help you get ₹ 1 lakh pension Per Month

Mutual Fund Calculator : SIP's that can help you get ₹ 1 lakh pension Per Month

Mutual Funds investment can be used for post-retirement income as well. According to tax & investment experts, Mutual Fund SIP (Systematic Investment Plan) enables an investor to grow money for one’s post-retirement financial needs. However, if an investor uses this money wisely, it will help the investor continue earning post-retirement.

They say that like SIP, one needs to invest the mutual fund maturity amount in SWP (Systematic Withdrawal Plan) to continue earning on monthly basis.

On how to plan one’s monthly income post-retirement, “One needs to first ensure how much monthly income one would require to continue meeting one’s financial goals.

After that, there is need to assess how much amount one would need for SWP after retirement. Once, these two goals are finalised then comes how much monthly SIP will be needed to meet that post-retirement monthly income goal.”

Money required for SWP to earn ₹ 1 lakh monthly income for next 25 years, “One would need ₹ 1.35 crore amount for SWP to get ₹ 1 lakh monthly income post-retirement for next 25 years. Assuming 8% return on one’s money in SWP, the investor will continue to earn ₹ 1 lakh per month for next 25 years.”

However, that sometimes people want to retire little earlier and in that case one needs post-retirement income for longer period. If a person wants to retire at 55 years of age, then it would need ₹ 1 lakh monthly income for next 30 years. In that case, one’s SWP amount will go up to ₹ 1.43 crore.

On how to get ₹ 1 lakh income for next 30 years post-retirement, “Without assuming inflation post-retirement, an investor can start an SIP of ₹ 2,100 per month & increase the amount of SIP by 15% year after year. Assuming CAGR of 12% on investment, you will be able to accumulate around ₹ 1.43 crore.

If you invest the Corpus in SWP at 8% per annum, you will be able to withdraw ₹ 1 lakh per month for next 30 years.”

Mutual Fund schemes in which one can think of investing today are ICICI Prudential Focused Equity Fund, ABSL Equity Advantage Fund, Axis Midcap Fund, Nippon Small Cap Fund & ICICI Prudential Global Advantage Fund.

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