Understanding The Different Types Of Annuities Under A Retirement Plan
Published On Sep 12, 2021 12:00 PM By Shrida Gulati
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Annuities are linked to pension but it is essential to understand that annuities and pension are two different things. Annuities are periodic payments which are made over a period of time from the lump sum corpus. Annuities are considered a regular source of financial income. Depending on the need of a person there are different types of annuities to fulfil different requirements.
What is Annuity?
Annuity refers to the periodic payments made over a period of time from the invested corpus. They are also considered as a form of regular source of income in the retirement phase of one’s life.
Different Types of Annuities Under a Retirement Plan
Below mentioned are some different types of of annuity option available under a retirement plan:
1. Immediate Annuity
Under an immediate annuity an individual pays premium in a lump sum and he/she shall receive guaranteed payouts at regular intervals. It is advised that people who are on the verge of retirement wish to receive a regular income in the retirement phase of his/her life.
2. Deferred Annuity
Under deferred annuity an individual is required to build a corpus which shall be utilised to purchase an annuity when an individual’s retiring. An individual can choose to pay a premium for deferred annuity once or through recurring deposits held for a certain period of time. An individual shall receive incremental payments of their money invested along with some amount of returns.
3. Fixed Annuity
Under a fixed annuity an individual shall receive guaranteed interest rate on the investment they make. Annuity payout under a fixed annuity is the same as the time frame of the payment.
4. Lump Sum Annuity
Most types of annuities available in India provide periodical payments, over a period of time. Under a lump sum annuity an individual can receive the payout as lump sum. It should be noted that lump sum payout under this annuity is an alternative and can be accessible at a certain period of time.
5. Variable Annuity
Under a variable annuity, the returns may rise or fall according to the performance of its underlying investment portfolio. This type of annuity provides periodic payments to an individual over a specific period of time. Variable annuities are not suitable if an individual wishes to purchase them for fulfilling his/her short term financial goals. Variable annuities involve a certain amount of risk when an individual chooses to invest their money in the annuity.
When it comes to purchasing an annuity, an individual must consider some things which are payment duration and cover for spouse. Annuities are an excellent way to ensure a source of financial income in the retirement phase of an individual’s life. You must know the different types of annuities before making a decision.
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Disclaimer: This article is issued in the general public interest and meant for general information purposes only. Readers are advised not to rely on the contents of the article as conclusive in nature and should research further or consult an expert in this regard.