About IndianMoney.com :
IndianMoney.com is not a seller of any financial products. We only provide FREE financial advice / education to ensure that you are not mis-guided while buying any kind of financial product
You have to plan for your retirement when you are young in
your career. You cannot start collecting money for your retirement a few years
before you retire.Insurance has just the product you need for your retirement
and it is called an annuity.
Immediate annuity:
You pay a
premium to the Insurer (Insurance Company).You get payouts from the Insurer
(Pension payments are made by the Insurer) a month or a year after you take
this plan. The pension payments are made regularly every month or quarter.
This can be a last minute retirement plan. If you have not collected any money for your retirement years you can opt for an immediate annuity plan.
Deferred annuity:
This is an ideal product to plan for your retirement. When you are young you have to collect money for your retirement.
This is the accumulation stage. The money you
collect in the accumulation stage is used for your retired years called the distribution stage.In a deferred annuity plan you have to collect
the money (build a corpus) for your retired years. You have to invest small
sums of money say each month (accumulation phase).
Your money
accumulates over the years and an immediate annuity plan is purchased for you
by the Insurer with this money.After retirement, payments are made to you
(distribution phase) regularly each month, quarter or year.
You also
have another option in your deferred annuity plan called commutation. You get
1/3rd of the amount you collect as a lump sum. The remaining 2/3rd
is invested in an immediate annuity.
You can choose the fixed option or the variable option to receive your pension payouts.If you opt for the fixed option the annuity payouts you receive after your retirement are fixed. They (fixed payments) may increase slowly over the years, but struggle to beat inflation.
You get the
pension for as long as you live or for a fixed period of time.You can opt for a
variable annuity plan. You can choose
where your money is invested. Usually a combination of fixed income securities
and equity (stocks and mutual funds) is taken.
You can opt
for high growth (aggressive) mutual funds, mid cap small cap or large cap
mutual funds.Equity gives a high return but at a high risk. The pension payouts
you receive after your retirement fluctuate (increase or decrease) with the
movements in the stock market.
If the stock
market performs well you get a higher pension payment in that particular month.
This helps you to easily beat inflation.If the stock markets crash your pension
payouts are also affected.
Opting for
the variable annuity plan helps you to beat inflation easily in times of stock
market bull runs, but your returns are affected when markets crash.Choosing
your annuity plan is left to you based on your requirements. You need to
analyze your situation carefully before making your investment decisions.
