A commonly heard advice about retirement planning is that one should start as early as possible and be consistent. While it is sound advice for most, it may not apply in all scenarios. Retirement planning involves a number of steps that you will need to implement at various milestones as you progress in age.
For example, annuity plans seem like a lucrative prospect for many consumers, but they can’t be sure of when to make a purchase. It is not necessary to buy these plans early in your career, but rather one of the last steps.
The confusion commonly arises from not having a comprehensive idea of annuities, their types, and who they are suitable for. So, if you are wondering about when you should make your annuity purchase, let’s find out.
What are Annuity Plans?
To better manage your pensioner lifestyle and fulfil routine expenses, it is advisable to have a regular source of income, such as a pension. When you do not have a pension but have savings you may like to convert into a regular income for your post-retirement days, you can purchase an annuity plan.
Such a plan is when you pay a certain sum of money (premium) to the policy provider, who will pay you regular income (annuities), usually for life. Annuity calculators may help you get a better idea of how much should you pay into the plan to get the annuities you seek.
Depending on the plan you choose, you may also have the option to:
- Include your spouse on the same plan
- Leave a legacy for your survivor
How you pay for your plan (premium frequency) also depends on the type of plan you choose.
Types of Annuity Plans
When browsing for annuity plans in India, every policy provider may offer a few options. While their specific features may vary across the board, they can broadly be classified into four types. These are:
- Immediate Annuity: These are plans you can buy today, with a single premium, and have your pay-outs begin in the next cycle. For example, if you choose the option for monthly annuities, your regular income should begin next month.
- Deferred Annuity: These are annuity plans you can pay for with regular premiums over a few years and expect your income to start a few years after your premiums are fully paid.
- Fixed Annuity: In this case, your pay-outs are fixed, i.e., you receive the same amount each cycle.
- Variable Annuity: These types of plans may be market-linked. Thus, your regular income per cycle may vary, depending on market fluctuations.
It is important to note that these plan types are NOT mutually exclusive. For example, you may find a plan that offers deferred and fixed annuities. Also, you may not find the mention of these terms in your plan brochure, but a clear understanding of these terms and a thorough read of the plan features should help you recognise the plan type.
When Should You Buy?
There is no single “right time” to buy annuities. If you are expecting to retire in a couple of years or sooner and have a substantial corpus you seek to convert into a regular income, an immediate annuity plan can be chosen right away.
On the other hand, if you are in your 30s, 40s, or 50s and want to include annuities in your retirement planning at this stage, a deferred annuity may suit you.
Thus, it is never the wrong time to buy an annuity plan, provided you are choosing the right plan type. Ensure that you are putting your money into something right for you and will help you live a comfortable retirement.
