Traditionally post-retirement years have been viewed with trepidation since this period of a person’s life has been regarded as the most vulnerable since one becomes weak physically and usually does not have a regular income from work. However, in recent years with increasingly effective retirement planning and investment cult setting in, life after retirement is also regarded as an opportunity to fulfil cherished goals such as travelling, launching a small venture, seriously pursuing a hobby and so on.
All that needs deft financial planning that guarantees a regular income – an annuity scheme offers precisely this facility. Annuities can provide freedom from financial stress. These long-range financial products are typically offered by insurance companies. But how to buy an annuity plan? It can be bought either through a lump sum payment or as regular payments.
Pros of an annuity plan
In this age of financial uncertainty, the biggest advantage of an annuity plans is that it offers guaranteed and regular income for the rest of the life. For an individual who does not have pension, an annuity plan makes perfect sense. This is a vital step towards financial security in old age. However, one should make accurate forecast about the need of income streams and buy annuity plans accordingly.
An increasing number of annuity plans have begun to offer death payouts as well. The persons named by the annuity holder at the time of buying the policy will get the payout.
Also, depending on which income tax system you are in – old or new – an annuity plan can help you reduce your income tax impact. The amount the subscriber pays for annuity plans determines the tax benefits.
Cons of an annuity plan
A big downside is the lack of liquidity in annuity plans. Insurance companies usually don’t offer any facility of early withdrawal, or even if it does, involves a lengthy process. Another concern is low returns that annuities offer. It comes as a trade-off for the security it offers in terms of regular and guaranteed payments to the annuitant. Personal finance advisors always say that the entire retirement funds should not be channellised into annuity plans.
