As years roll by, envisioning a retirement filled with tranquillity and well-deserved leisure becomes a cherished aspiration for many of us. However, the path to a secure retirement is not paved with mere hopes; it demands meticulous planning, particularly in the realm of financial security. The realities of life after employment underscore the importance of prudent retirement planning, yet the statistics reveal a stark truth – while 76 per cent of working-age individuals in India expect a comfortable retired life, only 33 per cent are actively setting aside funds for this phase. And this trend is not observed only in India, but across the world.
Rising healthcare costs, the relentless march of inflation, a burgeoning standard of living, and the desire to maintain one’s pre-retirement lifestyle all converge to create a potent cocktail of financial considerations.
Medical inflation, in particular, is a formidable adversary, galloping at an estimated 15 per cent annually, far outstripping the overall inflation rate of 8 to 9 per cent. The realisation dawns that without a comprehensive financial strategy, the golden years might be tarnished by worries and monetary constraints.
According to the World Bank, the life expectancy at birth in India has been increasing steadily due to improvements in healthcare, nutrition, and sanitation. From 61.3 years in 1960, it has increased to 72.3 years in 2021. It is estimated to increase further to 80 years within the next two decades. While this increase signifies progress in healthcare and quality of life, it also emphasises the pressing need for a robust income stream during retirement to cater to extended years of well-deserved relaxation.
Enter annuity plans
Annuity plans are financial instruments that hold the key to a well-rounded and carefree retirement. These plans offer a well-structured approach to retirement planning, ensuring a stable income flow when the salary pay-checks cease. Annuity plans offer a solution to problems like illiquidity or volatility of assets. An annuity is essentially a contract that guarantees a series of periodic payments until the individual’s demise. This provides a cushion of financial stability during the twilight years, a safety net that aligns perfectly with the concept of a comfortable retirement.
Annuity plans can be acquired through either a lump-sum payment or regular pay-outs, making them remarkably flexible and adaptable. What sets annuity plans apart from other investment options is their twin nature – they not only act as an investment tool, but also provide an insurance cover. This dual functionality encapsulates the essence of investment-cum-insurance plans.
In the realm of retirement planning, the rationale behind annuity plans is crystal clear. They offer a guaranteed rate of return, securing your financial future while simultaneously ensuring a steady flow of income. This regular inflow is essential to maintain the same standard of living post-retirement. What makes annuity plans particularly enticing is their promise of guaranteed regular income for life. This effectively shields individuals from the volatile swings of the market and economic uncertainties. It’s akin to having a dedicated financial guardian that stands strong in the face of market turbulence, safeguarding your finances against the spectre of plummeting interest rates.
Types of annuity plans
Annuity plans come with various options, each tailored to different financial scenarios.
Single Pay – Immediate Annuity plans begin offering regular pay-outs right after the lump-sum investment is made, providing instant financial support.
Single Pay – Deferred Annuity plans, on the other hand, defer the pay-outs until a chosen date, ensuring that the money grows and accrues interest until the designated time.
Regular/Limited Pay – Deferred Annuity plans allow you to contribute smaller sums over a period, after which the payouts commence.
There are also variants like return of premium and waiver of premium, adding additional layers of customisation to suit diverse financial needs.
While annuity plans paint a rosy picture of retirement, one crucial piece of advice rings loud and clear – start early. The adage of ‘the early bird catches the worm’ holds particularly true for retirement planning. A delay of just five years can lead to a startling 100 per cent increase in the monthly premium required to obtain the same monthly annuity.
To sum up, planning for a safe and secure retirement demands more than mere intention; it requires astute financial choices. Investment-cum-insurance plans, especially annuity plans, emerge as formidable allies in this journey.
They seamlessly marry the benefits of investment and insurance, offering guaranteed returns and stable income throughout your retirement years. As you gaze into the horizon of retirement, let the annuity plan be your guiding star, ensuring that your twilight years are truly the golden years you’ve envisioned. Remember, today’s investments pave the path to tomorrow’s serenity.
(The author is head, Investments, Policybazaar.com)