The ‘retirement’ time is that phase in a person’s life which is actually a golden time period. Everyone dreams of living to the fullest during retirement time. A person works endlessly in order to cherish this time in a stress-free and financially stable way. For this, a person should start investing at a very early age. But, today, when life is full of uncertainties, it is advised to start your financial planning right in your early 20s or 30s.
It is that time in a person’s life wherein they start earning but are not aware of how they should utilise the funds. In fact, they are also not well informed about the different plans and policies. Thus, it is very important to research and know about different investment avenues which promise a secured future.
Amongst different investment avenues, one should surely start investing in a pension plan or a pension policy. There are several insurance service providers that provide the best pension plan in India. For example, the FG Pension plan or Fortune Guarantee Pension Plan of Tata AIA Insurance is a plan which can be invested in for retirement planning. Similarly, there are other such pension plans that can be considered. But, while investing in a pension plan, it is essential to calculate the annuity as well.
What is an Annuity?
Basically, a stable income source is a key requirement for an individual post-retirement. It aids in covering expenditures as well as imparts financial stability. Here, annuity refers to a retirement plan tool which helps in creating a recurring source of income after retirement. Basically, an annuity is like a contract between an insurance service provider and the policyholder.
The policyholder, post-buying a pension plan, is required to pay a lump sum premium amount or pay them in regular intervals while they are earning. Post-retirement, the policyholder will get guaranteed regular income. One can use a pension plan calculator and invest accordingly. There are two types of annuity, namely, immediate annuity plan and deferred annuity plan. Let us understand both of them in detail.
What is an Immediate Annuity Plan?
If the policyholder chooses an immediate annuity plan, then they will start receiving regular income immediately post investing in the plan. Here, the policyholder invests a lump sum amount and gets payouts after 12 months from the date of the policy. The frequency of receiving these payouts can be chosen as per the convenience of the policyholder. An immediate Annuity plan is ideal for policyholders who are all set to welcome retirement and will require instant money.
Benefits of Choosing Immediate Annuity Plans
The following are the key benefits of choosing immediate annuity plans. They are as follows:
- The first and foremost benefit of choosing an immediate annuity plan is to be financially independent immediately post-retirement. The policyholder decides the interval for getting the payout.
- The policyholder has the liberty to design their annuity plan considering the type of annuity, their retirement age and pension quantum.
- The policyholder can choose a legacy option and joint cover for one’s grandchildren.
- The premium amount needs to be paid only once, and that too a lump sum.
- The policyholder is also entitled to get potential tax benefits under the Income Tax Act, 1961.
- Lastly, the policyholder can add their spouse to the policy so that they get the benefit of this plan even after their demise.
What is a Deferred Annuity Plan?
In a deferred annuity plan, the policyholder receives a regular annuity or income after a certain time period. This plan is ideally suitable for individuals who still have considerable time before they retire. Also, they are not in need of getting an immediate retirement income.
Ideally, the main difference between both immediate annuity and deferred annuity is with respect to the time when the policyholder will get payouts.
Benefits of Choosing Deferred Annuity Plan
The key objective behind choosing a deferred annuity plan is to secure and gain long-term savings. In a deferred annuity, the policyholder can withdraw as much amount they require and whenever they want it. We have listed a series of benefits that deferred annuity plans impart to the policyholder.
Transfer and withdraw
The policyholder has the freedom to withdraw the money whenever they want to, or they can transfer it to some other account and then fulfil your requirements.
Different payout options
In a deferred annuity plan, the insurance service provider can choose the funds which cover the spouse’s life or your life. In addition, the plan gives the liberty to the service provider to choose from multiple options to pay.
The policyholder will get the annuity only once the deferred phase is complete. Therefore, one needs to wait for the period to complete, and then according to the action on the annuity, payment can be taken.
Adding funds to Deferred Annuity Plan
Before annuitizing, the policyholder has to go through an accumulation phase. During this phase, the policyholder can add more to the account if and only if the insurance company and tax allow it to do so. At times, one can keep the account as it is without adding any amount, or one can add a lump-sum amount as well. But, most importantly, the policyholder should adhere to the rules with respect to the accumulation period.
Easy withdrawal of funds from Deferred Annuity Plan
The payout phase of the plan begins once the accumulation period gets completed. During this time, the policyholder is entitled to withdraw the funds. In case, the policyholder is of 59.5 years and above; then they are not required to pay any penalty charges. One can choose any method to get their funds.
The following are the ways in which one can receive their payment:
- If the policyholder withdraws the entire amount in one go, i.e., lump sum, then the amount is taxable.
- In case the policyholder wishes to withdraw the amount periodically, i.e., systematic withdrawal, then the amount which has been withdrawn is taxable, and they will earn interest on the remaining amount.
- Lastly, in an annuitization method, the policyholder will receive the payment until their spouse’s death. After that, the latter will be considered.
Both Immediate Annuity Plan and Deferred Annuity Plan have their own set of pros and cons. The immediate annuity plan will aid in enjoying the post-retirement phase, while the deferred annuity plan will secure and provide your long-term returns. But, the choice depends upon you as to which plan you would be willing to go ahead with.
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