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Give Your Retirement Savings A Booster-Shot with Annuities

An annuity plan is an insurance product that guarantees to pay you a fixed and regular pension to support your retirement years. Here's is more on how annuity boost your retirement savings.

  • Dec 16, 2021

Give Your Retirement Savings a Booster-Shot with Annuities

Experts say a retirement planning portfolio should balance at least three to four different financial instruments. Amongst other instruments available, buying a good annuity plan can stabilise your retirement planning strategy. Let’s know more about them and how they can boost your retirement savings.

What is an Annuity Plan?

An annuity plan is an insurance product that guarantees to pay you a fixed and regular pension to support your retirement years. Despite being an insurance product, it does not provide life cover. Instead, it offers safe and assured periodic pay-outs to support your daily expenses once you have retired.

Types of Annuity Plan

The annuity plans can be broadly classified into two types-

1. Immediate Annuity

In Immediate annuity plans, the insured pays a lump sum amount to buy the plan and starts receiving the pension pay-out immediately from the insurer. This type of plan is best suited for one who is nearing retirement or planning to retire soon.

2.Deferred Annuity

In a deferred annuity plan, one can buy the annuity plan with a lump sum amount and choose to wait for a few years before the pension period commences. The waiting period between purchasing the annuity and the start of the pension amount is called the deferment period. A deferred annuity is best suited for individuals who have age on their side and are not planning to retire early.

Income Options with Annuity Plans

Annuity plans generally offer the following pension options to serve specific needs-

  • Lifetime income
  • Lifetime income with the return of the purchase price to the surviving spouse.
  • Lifetime income with term guarantee.
  • Lifetime income with 100% annuity to surviving spouse.
  • Lifetime income with 50% annuity to surviving spouse.
  • Lifetime income with 100% annuity and return of the purchasing price to the surviving spouse.

How Can They Boost your Retirement Savings?

1.Regular Income after Retirement

Salary usually stops immediately after the commencement of retirement. In such a scenario, you can keep receiving a regular pension with the help of annuities. The regular income can help you meet daily expenses without putting pressure on your main retirement corpus or emergency fund.

2.Tax Benefits

While there is no tax benefit on a pension received through the annuities, you can claim a tax exemption under section 80C on the purchase price of the annuity.

3.Fixed Interest Rate

The rate of interest offered during the purchase of the annuity remains unchanged for the lifetime. This is the reason why you will keep getting the same pension amount for your entire life. You don’t have to worry about falling bank interest rates.

4.Complete Protection from Market Volatility

Annuity plans are non-participating. Therefore, the amount invested in an annuity is never invested in the stock markets. Hence, they are completely shielded from the stock market volatility. This makes them an ideal choice for risk-averse investments and retirement funds.

Choose a Trustworthy Insurance Partner

It is crucial to consider reputed insurance companies for buying an annuity plan. Choose only well-established insurers that will stay in business a few years or decades down the line when you have retired. Look at their solvency ratio and credit ratings to ensure they have a strong financial position. 

The main idea behind the annuity is to keep the in-flow of money intact even after retirement so that you may concentrate on being a happy and boisterous retired person spreading positivity all around.

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

Kotak e-Invest

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  • Return of Mortality Charges*$
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  • Multiple Plan Options
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Ref. No. KLI/22-23/E-BB/521


- A Consumer Education Initiative series by Kotak Life

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