Not all of your financial planning happens in the prime of your life. Retirement planning is an important aspect of your financial portfolio, and some of it is done closer to retirement. Annuities are a retirement planning option that you can choose when you are ready to retire.
If you do not have much information about annuities and their types, it can get a bit overwhelming. To ease this process, here is a guide to the different types of annuity plans and how to choose the right one for you.
Types of Annuity Plans
There are primarily four types of annuity plans available in India. Two of these are based on the types of pay-outs they offer, while the other two are differentiated on the basis of when you can start the annuities.
The two plans that offer different pay-out types are:
- Fixed annuity
In this plan, the regular amount received by the beneficiary is fixed. The customer end of the transaction is kept safe from market fluctuations, thus letting you rely on a fixed income monthly, annually, or quarterly, as per your choice.
- Variable annuity
Variable annuities are market-linked, and therefore prone to all the ups and downs that come with such transactions. If you are looking for a pension-like fixed income for life, this is not the best option for you. Variable annuities are better for people who do not mind the risk that comes with it, either because they have other sources of income or have retired early enough to make annuities into a secondary source of income.
Differentiated based on when the pay-outs start, the other two types of plans are:
- Immediate annuity
If you are closer to retirement or have already retired when buying an annuity, you may want your income through this plan to start right after purchase. The immediate annuity option makes it suitable for anyone who is looking to convert their capital into regular income immediately.
- Deferred annuity
On the other hand, if you want to buy a plan while your retirement is still further away, you may prefer to reap the benefits in a few years rather than immediately. Deferred annuities allow you to postpone your payments. With these, you can execute most aspects of your retirement planning as early as is comfortable for you.
Some of the other types of annuities are:
- Joint annuity: Plans which allow you to include your spouse, who may continue to receive benefits even after you are gone.
- Indexed annuity: These plans account for inflation and increase your payments by 2% to 5% per cent annually.
- Capital Refund: Capital refers to the premium you have paid minus the taxes applicable. Plans with capital refund offer to return your remainder premium amount after the death of the beneficiary.
Which plan should you choose?
When talking about types of annuities, know that most of these are classified on the basis of their features. You may not have to choose one amongst all of these. You would rather be required to put together the features you like from different categories.
Furthermore, your choice is meant to suit your needs. You can take note of the types of plans that suit you and shortlist a few. Make an informed decision by researching all available options.
Annuities are a way to turn your capital into an income stream suitable for your retirement. With a variety of plan types available, you can choose them based on your needs and interests.
