Ch. 2: Why you should invest in General and Single Premium Annuity Plans

Retirement is like a second innings of your life, where you’ll be free from most of your responsibilities. To ensure that you don’t face any financial difficulties during your retirement, it is crucial that you plan for it well in advance. One of the financial products that can help you do this is Annuity Plans sold by insurance companies.

Wondering how these plans can help and why you should invest in them? Here are a few reasons why!

You want a regular income

The monthly income that you earn while you’re working or employed will stop once you retire. Your expenses, however, won't stop. As a result, you may face financial challenges - especially if you don’t have a definite plan for your retirement.

These challenges can be avoided if you buy an Annuity Plan. Under this plan, you can accumulate funds over a period of time or invest a large amount of money in one go, which will be converted into a steady stream of income after you retire. This income will be paid to you for a certain amount of time or for the rest of your life.

So, if you want to receive a regular source of income in your post-retirement years, you can consider investing in an Annuity Plan.

You want to maintain a standard of living

In your work years, you'll be accustomed to a certain lifestyle and standard of living. You may want to enjoy the same lifestyle once your post-retirement life begins. So, if you don't want to compromise on your standard of living, you should consider buying an Annuity Plan. It is one of the most secure investment options available that will offer regular payouts in your retirement.

You want to keep pace with growing inflation

Inflation is increasing rapidly. And, the cost of all products and services is rising along with it too. Let’s take the example of petrol. 40 years ago, one litre of petrol cost Rs. 5.10; now, it costs Rs. 106. This implies that when you retire after 20, 30, or 40 years, inflation will have increased drastically. And your retirement savings, which you thought would last you for a long time after you retire, can diminish quickly.

Annuity Plans have a feature called ‘increasing annuity income option’. Under this option, the annuity amount you’ll receive will keep on increasing every year by a specific percentage. You can ensure that you are protected against inflation by buying an Annuity Plan with the increasing annuity option.

Medical emergencies

Old age and health problems go hand in hand. As you grow old, the risk of getting diagnosed or developing a medical condition increases. And as a result, your visits to the doctor or the hospital will probably increase too. So, a major chunk of your savings may go towards meeting these expenses.

An Annuity Plan can serve as a financial backup for medical emergencies in your old age.

There’s currently no social security system in India

Countries like the USA, the UK, Canada, etc. have well-established social security systems that guarantee a minimum monthly income to retirees, free medical treatments, etc. There is no such system in India right now, and there’s a possibility that you won’t get any support from the government after you retire. It’s not wise to rely on this.

Hence, due to the lack of social security systems in India, you must think about purchasing an Annuity Plan so that your post-retirement expenses are taken care of.

The increase in life expectancy

Life expectancy in India is increasing due to advancement in medical technology. This means you will have a longer retirement life. And, because of this, you’ll require a larger retirement fund to cover those years. An Annuity Plan can come to your rescue here.

Annuity Plans give you an option to receive a regular income for as long as you live. With this, you can ensure that you don’t run out of money in your retirement years.

You want to be financially independent

According to a study conducted by the HSBC Future of Retirement in 2018, 68% of working people expect their children to support them financially at some point. And, 30% of the people who have already retired depend on their children for their post-retirement expenses.

If you’re someone who doesn't want to rely on your children for your post-retirement finances, or sell your properties and assets to meet your retirement expenses, you must buy an Annuity Plan. This plan will ensure you live your retirement years on your own terms, independently - without depending on anyone.

You want a secure investment

The returns under an Annuity Plan are not market-linked. So, if you’re looking to invest in a safe and secure instrument without any market volatility, then an Annuity Plan might just be the right choice for you.

You want assured returns

When you buy an Annuity Plan, the insurance company will lock in an interest rate or annuity rate. When you retire, the annuity amount that you’ll be paid regularly will be calculated on the basis of the same interest/annuity rate. So, you can be certain that the insurer will make the annuity payouts to you regularly as the rate at which you’ll receive the annuity is fixed well in advance.

Thus, Annuity Plans provide a sense of financial security as the payouts made under them are guaranteed.

You want to avail tax advantages

Lastly, if you want to get tax benefits* under the Income Tax Act, 1961, you can consider investing in an Annuity Plan. The money you invest in an Annuity Plan is eligible for tax deductions under Section 80C. You can get tax benefits* of up to Rs. 1.5 Lakhs annually.

As you can see, there are many reasons why buying a General or Single-Premium Annuity Plan is crucial. Investing in these plans will ensure you live a comfortable, worry-free life after you retire.

Reference
https://blog.bankbazaar.com/dont-depend-on-your-children-during-your-retirement-years/