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Can annuity double up as a pension plan?


Yes, if you are careful to choose the type of annuity you require and invest sufficiently in it for a longer space of time.

Retirement – the term itself has a golden aura of contentment around it. When we say the word 'retirement', we often think of a person peacefully sitting in a rocking chair and reading a book, or sitting at the beach sipping coconut water. Retirement is a golden phase of one's life – it signals the end of obligations and duties and the start of a second innings

But for most retirees, this supposedly golden phase of their life can quickly turn into a nightmare. Lack of adequate planning for retirement results in low financial reserves. Added to this, the stoppage of income can wreak havoc in the life of a retired person. From being somebody who financed the expenses of the entire house for years, one suddenly becomes dependent on children and close relatives for daily living.

Avoid the pitfalls of unplanned retirement
Taking a pension plan when one is still young and employed should be on the horizon of every working person today. But for a person in his 20s and 30s, retirement is a distant possibility that will take years to become a reality. Hence, one fails to plan for it adequately while one still makes a good income.

In fact, the very concept of 'retirement' needs to be re-examined. Who says that a person may retire only at age 60? He may choose to retire even at age 40 if he so wishes! But to retire at any age, a person must first adequately prepare himself with clever financial planning using a pension plan.
 
Pension plans = Like annuity plans?
Pension plans are insurance-cum-investment options for those looking for a healthy, financially independent retirement. The policy holder must pay premiums towards them every year, and the policy matures at the time of retirement. Then on, the person receives a regular periodic pay-out of the accumulated corpus, or may receive it in a lump sum payment.

A pension plan thus frees a retiree from the perils of low finances and also provides life coverage. In this context, they are very similar to annuity plans. A person investing in an annuity plan may choose to get a one-time pay-out soon after the premium is paid (Immediate Annuity) or pay premiums for a number of years and receive the pay-out once the policy holder retires. It is advisable to take a pension plan when one is past the age of 30 and making a good living. It is possible to make regular premium payments at this stage, and a person past his 30s is in a better position to judge the age at which he will retire.