Does an Annuity Plan Work for You?

ANNUITY PLANS CAN FORM A GOOD PART OF YOUR RETIREMENT PORTFOLIO IF THE PRODUCT FIT IS RIGHT

- NAVEEN KUMAR

You work hard to build a retirement fund. The only task left for living a comfortable life after retirement is to get regular income out of this. A safe way of doing that is to buy annuity plans, which invest your money in markets and pay you regularly from the returns generated. Many life insurance companies offer these plans. Investors in the National Pension System (NPS) and superannuation funds have to mandatorily buy annuity. Annuity plans come in different forms.

Deferred or Immediate: There are two basic plans – deferred and immediate. In deferred annuity, you deposit a lump sum and wait for it to grow; you can also regularly save over a period, after which regular income starts. In immediate annuity, payments start immediately. “Immediate products are for the 60 years old segment, while deferred products are suitable for customers in the age bracket of 50-60 years,” says Puneet Nanda, Deputy Managing Director, ICICI Prudential Life Insurance.

Guaranteed income for life: The best thing about annuity plans is certainty of regular income. The rate set at the time of purchase does not change during the payment period.

“One of the biggest advantages of annuities is that they eliminate reinvestment risk. In fixed rate annuities, the risk that the interest rate will be lower when one reinvests the principal is eradicated. Products such as fixed deposits or debt mutual funds or post office monthly income scheme carry reinvestment risk. Annuities guarantee the same payout rate for life,” says Tarun Birani, Founder and CEO, TBNG Capital Advisors.