Retirement planning is an integral part of your financial plan. Creating a financial plan for your post-retirement years will allow you to enjoy life after work. There are several financial instruments that you can choose from to create a retirement plan that meets your needs. Usually, an annuity plan is a part of most retirement plans. If you are planning to buy an annuity, it is important to understand its purpose along with how to find the right one that fits your needs.
An annuity plan is a financial instrument that provides income at regular intervals after you have invested a lump sum amount. The amount which is invested by the policyholder is further invested in different instruments to generate returns. The reason that annuity plans have gained popularity is because they offer a regular source of income when an individual retires. Depending upon your needs, you can choose a flexible payout option. Immediate annuity plan, deferred annuity plan, fixed annuity plan, variable annuity plan, and lump-sum annuity plan are some common types of annuities. With so many providers and so many options, it’s difficult to choose an annuity plan. Here are some factors you need to consider before buying an annuity.
How do I choose an annuity plan?
While each annuity plan has different features and offers different benefits. Here are some key factors that you should look for when you are buying an annuity:
- Choose the one that provides optimum coverage
When you are buying an annuity plan, the coverage it provides is one of the key factors to consider. You need to choose a plan that offers sufficient coverage for securing your dependents. This is because, in case of an unfortunate demise, your dependents will receive the payout from your annuity policy. Having sufficient financial coverage ensures that you and your loved ones, both, are financially secure when income stops flowing in. Using a retirement calculator can help to get an estimate of the funds you need to invest to meet your retirement needs.
- Offers liquidity of funds
Liquidity of funds is essential when life throws curveballs at you. Be it in the form of an urgent expense or an emergency, having money at your disposal is necessary. With an annuity plan, you can have the required funds at your disposal. An annuity plan that offers a quick gathering of funds is advisable. However, ensure that you only use your accumulated amount for necessities and emergencies instead of unnecessary spending.
- Check the variability and choose accordingly
Depending on your requirements, you can either opt for a fixed annuity or a variable annuity plan. In a fixed annuity plan, you will receive fixed payouts regularly. Contrarily, variable annuity schemes provided with variable returns depending on the market conditions and the underlying assets’ performance. You should consider both options and then narrow your choice to the one that meets your requirements and risk appetite.
- Offers guaranteed returns
The purpose of an annuity plan is to meet your financial needs once you have retired. It is the disposable income that you can rely on to fulfil your then financial needs. Choose an annuity plan that offers guaranteed returns. This ensures that you receive a fixed amount on a recurring basis, and accordingly can plan your finances. It is also important that you use a retirement calculator and take inflation into consideration while choosing your annuity.
- Reputed provider
An annuity is a long-term financial product. Hence, the plan you choose is quite crucial as it will directly affect your income during golden years. It is important that you choose an insurance company that is well-reputed and will timely pay your annuity. The company that offers you a plan with an adequate security and sufficient returns would be the ideal choice for you.
When you are buying an annuity, compare the several plans available online, and then narrow down your choices. Annuity plans aren’t one-size-fits-all. Instead, you need a plan that meets your requirements. Your annuity plan is your source of income after you retire. Therefore, it is essential that you choose it with care.