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Are Annuities Great For Early Retirement?

Annuity plans are insurance products that provide guaranteed regular income after retirement to the insured. Read more about What is better than an annuity for retirement?

  • Dec 14, 2021

While the modern generation of the young Indian workforce is highly ambitious about their careers, they are also more inclined to live life to its fullest. They want to retire early to experience all the good things in life rather than working till they reach 60.

A significant number of young people are more serious than ever to plan an early way out of their respective jobs to follow their dreams, hobbies, or passion. The annuity plans almost always feature prominently in any retirement planning options. Let’s find out whether they are good enough for early retirement.

What are Annuity Plans?

In simple terms, annuity plans are insurance products that provide guaranteed regular income after retirement to the insured. The payment period can be either for life or a stipulated period. 

Annuity plans do not provide life insurance cover. However, they do have an option to fully repay the principal amount to the nominee in case of the insured person’s death.

You can invest in an annuity plan either through a one-time lump sum amount or through regular monthly, quarterly, or annual investments over a period

Are Annuities Good for Early Retirement?

Not just good, annuities can be great for early retirement. Here is how

  • They can provide a stable and fixed source of income for a considerable length of time. They can even offer a guaranteed pension for a lifetime.
  • As they are non-linked, the returns are risk-free and fully insulated from the ups and downs of the stock market.
  • In immediate annuity plans, the pension amount starts right away after buying the plan. Most of the reputed plans have an entry age of 45 years. Thus, one can buy such a plan at the age of 45 and immediately start getting a regular pension and retire early

But aren’t Mutual Funds and ULIPs Better?

Mutual funds and ULIPs help build a substantial retirement corpus and beat inflation by providing a potentially higher rate of returns than the traditional deposit options like bank FDs or post-office schemes.

However, they are subjected to market risks. While there are chances of getting valuable returns on your investments, you also bear the risk of volatile exposure to stock market crashes as well.

On the contrary, annuities provide you with risk-free returns unaffected by stock market crashes or possibilities of manipulations.

Diversification is the Key to Building a Healthy Retirement Corpus

Diversifying your investments across various investment vehicles can be an excellent way to plan your retirements. A good retirement portfolio should have a fair mix of investment, savings, and insurance products to give you complete protection in your golden years

Although an insurance product, annuities give you the benefit of insurance and savings. They can act as a fail-safe option in case any other investment goes wrong or underperforms. So make sure it is a significant part of your retirement planning. At the same time, don’t forget about other vehicles, such as life insurance ,health insurance, mutual funds, and other investments.

Never Stop Earning a Regular Income with an Annuity Plan

It feels great to get regular payment even when you are not working. Annuities can be a great way to achieve this goal. Therefore, consider including annuities into your basket of investments enroute to your retirement.

In this policy, the investment risk in the investment portfolio is borne by the policyholder.

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