Retirement planning: How to choose the right annuity plan
An annuity is an agreement between two parties wherein the insurer agrees to make a series of payments at regular intervals of time to the annuity purchaser. A lump sum or staggered investment is made by the buyer for the annuity plan chosen by them. An annuity is considered as a provision for retirement where one can ensure a steady stream of regular income over the retired life of the person.Choosing the right annuity plan
This depends upon two major factors: the potential age of retirement and the type of payout one is looking for from the annuity. Typically, there are two kinds of annuity plans: a) Immediate plan, where the annuity payments begin immediately after the initial payment is made, and b) Deferred plan, where the payments are made after a certain period of time has elapsed after the investment is made.
Choosing the correct annuity option
The choice of variable annuity (which may be marketlinked) or fixed annuity should be made based on the risk appetite of the purchaser. You can choose from an annuity that is only payable during the life of the purchaser or where it is payable on the joint life of the spouses. Similarly, you can choose to have return of premium or to receive increasing annuity payments over the years. The initial purchase premium amount will depend on these choices.
Application
Once the above choices are made, you should consider the different plans on offer and whether your requirements are fulfilled by them. You can use annuity calculator tools to evaluate different plans. After choosing the right product, the application process can be initiated by filling the proposal form and making the initial payment.
Points to note
While purchasing an annuity, check with a tax adviser the income tax implications on receipt of annuity payments.Take into account inflation while evaluating the annuity amount offered by the provider.Content on this page is courtesy Centre for Investment Education and Learning (CIEL).
Contributions by Girija Gadre, Arti Bhargava and Labdhi Mehta.
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(Disclaimer: The opinions expressed in this column are that of the writer. The facts and opinions expressed here do not reflect the views of www.economictimes.com.)
This story originally appeared on: India Times - Author:Faqs of Insurances
