With increasing life expectancy and rising aspirations, more adults are viewing retirement or the golden years as an opportunity to explore their interests, follow their dreams and hobbies, travel, and spend time with family. At the same time, they are also cognizant of the need to have a source of regular income to be able to do this and live a financially independent retired life.
Annuity products are an excellent tool to ensure guaranteed regular lifelong income for retired individuals. The income that one gets from an annuity plan is “locked in” at the time of purchase and remains the same throughout the lifetime of the pension receiver or the annuitant. This provides retired individuals control of their finances – which is a crucial component of having relaxed and peaceful golden years.
Let us better understand what the features of an Annuity product are that can give customers a sense of control.
Guaranteed income for whole life
One of the questions which are hard to answer and, thus, makes it hard to plan for retirement is: “How long will I live and how long should my financial plan provide for?” An annuity product addresses this question by assuring a fixed income for as long as the annuitant lives. In other words, the income is guaranteed for life. This eliminates the unpredictability regarding one’s lifespan and, in turn, answers the question of how long one has to plan for.
Volatile-proof income
The income from an annuity plan is completely guaranteed and insulated from any factor that may otherwise cause income volatility. Irrespective of how factors such as equity markets or interest rates move, the income from an annuity product remains fixed and guaranteed. This is because the rate of interest at which the income will be paid out is fixed at the time of purchasing the annuity product. So, this is the second factor of unpredictability that is eliminated in an annuity product.
Secured income for spouse
Most annuity products have an option called ‘joint life’. This ensures that even after your demise, your spouse continues to receive the same quantum of annuity or pension that you received, ensuring their financial security as well. So, the third area of concern: ‘what will happen to the financial wellbeing of my spouse in my absence” - is also addressed in an annuity plan.
Payout flexibility
Depending on when you want your payouts to begin, annuity products are of two types: Immediate and Deferred.
Immediate Annuity is apt for those individuals who are on the brink of retirement or have just retired. In this option, as the name implies, the annuity starts as early as the next month from the date of purchase. However, for those with retirement a few years away, the Deferred Annuity option is more suitable. It will also allow the corpus invested to multiply. The earlier one purchases a Deferred Annuity plan, the higher will be the income for the amount invested.
Historically, annuity products could only be purchased by making a one-time premium payment. But life insurers have introduced innovative products which enable individuals to make regular contributions and build the desired retirement savings over the long-term and thereafter receive regular income.
Individuals who have several years left for retirement should opt for this variant. For instance, with ICICI Pru Guaranteed Pension Plan Flexi, one can systematically make regular contributions over a period of 15 years and build a retirement kitty.
Each one of us deserves a peaceful content life after retirement. Good health, a rich social network and the ability to pursue our hobbies and interests are all crucial elements of an enriched life after retirement.
Having control over one’s finances enhances the quality of life after retirement. Annuity plans provide that element of control.
(The writer is Head of Products, ICICI Prudential Life Insurance Company)