After retirement, an individual needs to have a uniform flow of income to manage everyday expenses and also to maintain one’s lifestyle.
A lot of people may recommend what they feel is the best pension plan in India, but did you know that Annuity Plans can help you achieve the much needed financial freedom after retirement?
What is an Annuity Plan?
An annuity plan is an agreement between you and the insurance company where you make a lump-sum payment in return for which you receive regular payments, similar to a pension. The insurance company invests the amount you pay, and, in turn, you receive the returns that are generated.
Although you are doing well in life right now, it is crucial to save money for the post-retirement years so that you can continue living a financially independent life. Investing in a suitable annuity plan will help you worry less about you and your family’s future.
Different Types of Annuity Plans
Listed below are four variants of Annuity Plans in India:
#1. Deferred Annuity: In deferred annuity plans, the money is invested for a certain period before the payments are made. It is suitable for individuals who are still working and have a few years left for retirement. It also comes with a life cover which offers a lump sum amount to the nominee in case of demise of the policyholder.
#2. Variable Annuity: As the name suggests, the payout in this type of annuity is not fixed and may differ across different companies. It is because a variable annuity is based on the market performance and hence is also a little risk-prone.
#3. Immediate Annuity: In an immediate annuity, payments are made immediately after the initial investment is made. It is suitable for individuals who are about to retire. You can also convert deferred annuity to immediate annuity if you require immediate payments.
#4. Fixed Annuity: With a fixed annuity, the amount payable for the whole period of the annuity plan is fixed. Besides, the plan duration is also fixed. It is very likely that after the demise of the policyholder, the nominee will receive the fixed amount.
Why Annuity Plans Are Good Retirement Solution
#1. No Cap of Investment
When it comes to annuity plans, there is no cap of investment as there is in other retirement pension plans, Senior Citizen Saving Scheme or Post Office Monthly Income Scheme.
#2. Removes Risk of Reinvestment
With most of the other types of investment in India, when you wish to reinvest a principal amount, you will most likely end up receiving a rate of interest which is on the lower side. However, when it comes to Annuity Plans, you have an assurance of payment for the rest of your life.
#3. Sense of Financial Security
Annuity plans provide you with a sense of security as you receive income every month. The insurance company takes care of the investment risk of how to go ahead with your financial investment so that you live a stress-free life. Moreover, apart from choosing how to pay the premiums, you can also choose how to obtain the payout which is decided at fixed intervals of time. You can choose to opt for monthly, quarterly, half-yearly or yearly.
#4. Tax Benefits
Investing in insurance comes with various tax benefits. The same applies to Annuity Plans, wherein if you invest in an Annuity plan/Pension plan at an early age, you are eligible to save on income with tax benefits.
- The regular premiums paid towards Annuity plans are tax-deductible under Section 80C of the Indian Income Tax Act.
- If you opt for the Immediate Annuity Plan, the lump sum amount you pay is eligible for tax deduction under Section 80CCC.
- The regular payments received under Annuity payments are taxable under the applicable tax slabs, as governed by the prevailing tax rules.
To purchase an annuity plan, you need to be in the age group of 35-75 years. However, it may vary based on different life insurance companies. It is advised that you research well on different annuity plans available and opt for one which suits your financial needs and secures your life after retirement.