Can annuity double up as a pension plan?

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.

The lack of adequate retirement planning leads to low financial reserve. 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.

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 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.