Top Pension Plans with Guaranteed Returns for Retirement
Planning out retirement is especially important in a developing country like India, which has a very high inflation rate because an individual’s expenses will most probably shoot through the roof once they retire. With this in mind, plenty of people seek out pension plans which guarantee fixed returns, as it dramatically reduces the risk of losing income due to the economy.
These plans can primarily be divided into two categories: immediate annuity and deferred annuity. Each aims to satisfy distinct retirement needs that vary based on how much people wish to withdraw and when.
Understanding Immediate and Deferred Annuity Plans
Annuities are financial products designed to provide a steady stream of income, typically during retirement. They are often used as a tool to ensure financial stability and mitigate the risk of outliving one’s savings. Annuities can be broadly categorised into two types: immediate annuities and deferred annuities. Each type serves different financial goals and timelines, and understanding their features, benefits, and drawbacks is essential for making informed decisions.
1. Immediate Annuities:
Immediate annuities are designed to provide income almost right after the initial investment. They are ideal for individuals who are at or near retirement and want to convert a lump sum of money into a guaranteed income stream.
Features of immediate annuities:
- These plans start providing pension payouts immediately after a lump sum investment.
- Suitable for retirees who need instant income.
- The annuity amount is fixed for life, offering financial predictability.
- Common payout options include monthly, quarterly, half-yearly, or annual income.
Who Should Choose?
- Individuals who have received a large retirement corpus (e.g., EPF, gratuity, or savings) and want to convert it into a steady income source.
- Retirees looking for risk-free, lifelong income.
2. Deferred Annuity Plans
Deferred annuities are designed to grow your savings over time before converting them into a stream of income at a later date. They are suitable for individuals who are still working or saving for retirement and want to build their retirement portfolio for the future.
Features of deferred annuities:
- These plans allow investors to accumulate a pension corpus over time by paying premiums.
- Pension payouts begin after a chosen deferment period, usually at retirement age.
- Offers tax benefits under Section 80CCC for premiums paid.
Who Should Choose?
- Individuals in their 30s, 40s, or early 50s looking to build a retirement fund.
- Those who want a guaranteed pension post-retirement without depending on market-linked returns.
Why Opt for Guaranteed Returns for Retirement?
Guaranteed pension schemes offer market-proof returns, providing fixed payouts unaffected by market volatility. They ensure lifelong financial security, allowing retirees to maintain independence without worrying about income fluctuations. Unlike market-linked savings, these plans eliminate the risk of outliving your savings, offering a steady income stream throughout retirement.
Annuity Options available in India:
Once you know about the different types of annuities that are available in India, you need to be aware of the possible annuity options that you need to choose. These options cater to diverse needs, whether one seeks immediate income, long-term growth, or a balance between security and flexibility. Understanding the different types of annuity plans offered in India is essential for making informed decisions and ensuring financial stability in the years to come. Below, we explore the key annuity options available in the Indian market.
Once you choose the specific annuity option, your pension becomes guaranteed for life! Hence you need to choose the option carefully.
1. Life Annuity:
This option provides an annuity only to the annuitant as long as he lives and then nothing thereafter.
- Regular income is paid for life to the annuitant.
- No payout to the family after the annuitant.’s demise.
Hence, this type of annuity is best suited for those individuals without dependents as it provides the best annuity rates and high lifetime payout.
2. Joint Life Annuity
This option provides an annuity only to the annuitant as long as he lives and then provides either a 100% (or 50%, as chosen) annuity to the spouse after his death as long as she survives, and then nothing is paid thereafter.
- Pension continues for the spouse after the annuitant’s demise.
- Ensures financial security for both partners.
Hence, this type of annuity is best suited for those couples without dependents as it provides high annuity rates and lifetime payout.
3. Annuity with Return of Purchase Price:
This option provides an annuity only to the annuitant as long as he lives and then after his death, the entire purchase price (i.e. the initial amount paid towards buying the annuity) would be paid to the nominee as a death benefit. This is how the “purchase price” is returned on death.
- Provides regular pension for life and refunds the initial investment amount to the nominee after the policyholder’s death.
- Ensures capital preservation for heirs.
Hence, this type of annuity is best suited for those wanting to pass on a financial legacy to their legal heir.
4. Annuity Certain:
This option provides an annuity for a minimum fixed number of years and then for life thereafter. This is paid irrespective of whether the annuitant is alive or not. So, for example, if the annuitant chooses an Annuity Certain for 20 years but dies even in the 2nd year, the annuity payout would still continue till the end of the 20th year.
However, if the annuitant chooses an Annuity Certain for 20 years but lives for 30 years thereafter, the annuity would continue till as long as he lives, i.e. 30 years. However, nothing would be paid to the nominee thereafter.
- Pension is paid for a fixed term (e.g., 10, 15, or 20 years), even if the policyholder passes away during the period.
Hence, it is Ideal for those who want assured income for a specific time frame.
Author Bio
Paybima Team
Paybima is an Indian insurance aggregator on a mission to make insurance simple for people. Paybima is the Digital arm of the already established and trusted Mahindra Insurance Brokers Ltd., a reputed name in the insurance broking industry with 17 years of experience. Paybima promises you the easy-to-access online platform to buy insurance policies, and also extend their unrelented assistance with all your policy related queries and services.
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