Retirement is one of the most crucial phases of our lives. After working tirelessly for many years, you finally have the privilege of leaving your active work life behind and enjoy your second innings to the utmost. To enjoy a safe, secured and comfortable retirement, having a financial cushion for yourself is foremost. It is important to have a regular flow of income during retirement so that you don’t have to compromise anything as far as your living standards are concerned.
When planning for retirement, we often ponder various financial instruments hoping that we get the best one to park our money safely. One such reliable financial instrument to get back the returns on investment is annuity. An annuity is a pension plan that helps you get a regular income for life against an invested lump sum amount. This lump sum amount can be paid monthly, quarterly, half-yearly or annually.

Depending on when you want to start receiving your pension, annuity plans are divided into two categories:

Deferred annuity

In deferred annuity, when you invest a lump sum amount, you enjoy a guaranteed pension lifelong starting after 10 years. For instance, you invest a lump sum amount of Rs 60 lacs in deferred annuity at the age of 50 years. When you turn 60, you will get a monthly pension of Rs 50,000 and on your death, your financial dependents will receive the purchase price as lump sum i.e. Rs 60 lacs.

Immediate annuity

In immediate annuity, the lump amount is invested one time when you are about to retire and you enjoy a guaranteed pension amount lifelong starting from the next month. For instance, if you invest Rs 75 lacs in immediate annuity plan at the age of 60 years, you will start receiving a monthly pension of Rs 38,300 from next month. You will continue to receive this pension lifelong. At the time of your death, your nominee will be given the invested amount of Rs 75 lacs.

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Multiple options to choose from

There are many options to choose from annuity plans based on your needs such as

Joint Life Annuity with return of purchase price: This is the most popular type of annuity option bought by consumers. In this option, the policyholder receives monthly pension against the amount invested until he is alive. On the death of the annuitant, the spouse starts receiving monthly pension. On the death of both spouse and policyholder, the financial dependents of the policyholder receive the invested amount as a lump sum. These plans suit those who want to have monthly expenses and leave a legacy for their children.

Life Annuity with return of purchase price: This option pays you an annuity for life and on death, the purchase price is returned to your nominee. So, under this option only policyholder will monthly pension unlike the former option. Customers who generally opt for this option want to leave a legacy behind for their spouse or children. In India, Life Annuity with Return of Purchase option is the most popular among customers.

Why should you invest in Annuity?

If you are a risk-averse person, then an annuity is a good investment tool for retirement. It provides a steady income stream. You can choose to buy an annuity at any point of time in life- be it at your retirement age or when you are young. The biggest advantage of annuities is your money is locked in for providing that comfortable lifestyle, which everyone desires once you retire. So, there isn’t any reinvestment risk involved. With changing interest rates, having a financial product that guarantees lifelong income with the same interest rate is crucial. Moreover, there is no investment cap in annuities unlike other government pension schemes including Senior Citizen Specific Scheme and Post Office Monthly Income Scheme where the maximum investment amount is capped to Rs 15 lacs and Rs 4.5 lacs respectively. 
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