Can an Annuity Plan give you a Financially Secure Retirement?

Pros and Cons of Getting an Annuity - SmartAsset

Not so long ago, retirement was looked upon as the end of an individual’s earning capacity. Today there are several financial instruments that are designed to offer you a regular income in your golden years, one of which is an annuity plan.

Let us look at this plan in detail and understand how it can help you have a financially secure retirement.

What is an Annuity Plan?

It is a financial product that is designed to offer you a steady flow of income either for life or for a stipulated duration. This plan protects you against the risk that you may outlive your resources post-retirement. Depending on the pay-out option, you can receive either a lump sum or regular instalments during the accumulation period.

What are the types of Annuity plans?

Generally, this plan is divided into two main categories:

  • Deferred Annuity:

In this plan, you pay premiums and build a corpus until a specified duration. The payment begins after a particular term as specified by your plan. 

  • Immediate Annuity:

In this plan, you pay a lump sum amount, instead of a specified number of instalments over time. The plan then pays you a regular payout. Generally, immediate annuity plans are purchased by Individuals who are about to retire and would like to receive a monthly income right away.

In these two categories, annuities can also be either fixed or variable. This depends on, whether:

  • The payout is a fixed sum.
  • The performance of the plan is tied to the overall market trend or group of investments.
  • If it is a combination of the two factors mentioned above

How to pick the right plan?

When it comes to selecting the right annuity plan, weigh your plan on these three parameters:

  • Safety
  • Returns
  • Liquidity

Along with this, it is also important to check the plan provider’s track record. Returns provided on past annuities and the current financial strength of the company are also some of the key factors which you need to consider before opting for the plan.

Every plan comes with its set of terms and conditions. They essentially give you an understanding of what you will receive from your plan. Hence, to ensure that you are making an informed decision it is crucial to read through the terms and conditions carefully. You can also seek professional help to know which plan will suit you the best or an annuity calculator can come in handy too.