Retirement plans are an essential element of financial planning. However, with interest rates at multi-year lows and volatile markets, there aren't many possibilities for individuals to invest in. This is where annuities shine as a safe investment for a steady and consistent source of income in the sunset years.

However, before we go any further, let's look at annuity policies and how to get the right plan for your needs.

What are Annuity Plans?

An annuity is a financial instrument that provides policyholders with a steady income source once they retire. Annuity plans are divided into two stages:

  • Accumulation phase
  • Distribution/ annuitization phase

A policyholder pays a single lump sum amount or regular monthly/yearly instalments during the accumulation period and receives regular payments for the rest of his life or for a prespecified set term. There are different types of annuity plans available, and to choose the best one for your requirements, consider the factors listed below.

Factors To Consider When Choosing Annuity Plans

Some of the factors to consider before opting for an annuity policy are mentioned below.

  1. Plan Features

Annuity plans can be categorised based on a variety of features.

  • Timing

Depending on their circumstances, policyholders can select between immediate annuity plans and deferred plans.

An immediate annuity is suitable for individuals nearing retirement and looking for a reliable monthly source of income after retirement. By placing a one-time payment, he can choose the immediate annuity and begin receiving regular payments for the rest of his life. On the other hand, young people prefer deferred plans because they can pay regular premiums throughout the accumulation stage and accept returns at a later date.

  • Variability

Based on his risk tolerance, a policyholder can choose between fixed and variable annuity plans. A fixed annuity's funds are placed in investment vehicles with predictable returns. On the other hand, variable plans invest funds in market-linked assets, with returns determined by the performance of the underlying investments.

  1. What it Covers

A policyholder can choose the sort of coverage he requires. For example, he can opt between a single and joint-life annuity. It is recommended that you select a joint annuity plan that insures both you and your spouse's lives to maximise coverage. In the event that the primary policyholder dies, your wife/husband will get annuity payments. This will allow your wife to live a financially independent life even when you are not around.

  1. Returns

The primary goal of purchasing an annuity plan is to provide a consistent income stream that will assist you in meeting your financial needs after retirement. Therefore, it is best to choose a plan that offers decent returns to assist you in paying all of your future expenses without difficulty.

  1. Liquidity

Emergencies can happen at any time, leaving you vulnerable. This is why selecting a fund that allows for partial withdrawals in an emergency is critical. However, it is generally encouraged not to make frequent withdrawals to get healthy long-term returns.

  1. Safety

Annuities are long-term financial instruments in which the policyholder invests his hard-earned money over a period. As a result, it is natural to choose a company with a good track record and a high level of investment security. 

Annuity policies are a great way to build a corpus that can be utilised to generate lifetime income after retirement. Furthermore, the factors described above will assist you in determining the ideal annuity plan for your needs.