For a peaceful retired life, a stable income along with the safety of the invested amount is considered to be an ideal financial move. While there are many investment avenues to build a retirement corpus, one of the many present-day alternatives is an ordinary annuity plan. Considering India’s demography consists of a large portion of the middle-aged population with rising life expectancy, there is a need for an investment product that secures retirement by offering guaranteed income.
What is an ordinary annuity plan?
Annuity plans are a contract between the insurance company and the policyholder. Here, the policyholders make a lumpsum payment to receive payments after a specified period, generally, during retirement. Thus, it is more like a pension plan. An ordinary annuity comprises several equal payments that are made at the end of consecutive periods for a specified tenure.
These payments can be made either monthly, quarterly, half-yearly, or even annually. For instance, the monthly pay-out will be made at the end of each month to the policyholder. To correlate, a monthly pay-out under an ordinary annuity plan would be similar to bank FDs that pay interest at the end of each month. Since each annuity contract is unique in nature, the features and advantages of a plan depend on the insurance company from whom the annuity is bought, and eventually how the annuity is used.
Moreover, it is common knowledge that rising interest rates lower the present value of an ordinary annuity. Similarly, when the interest rates decline, the present value of the annuity payment increases.
Achieving financial goals using ordinary annuity plans
A financial goal when expressed in a clear, and realistic manner can be easier to achieve. This can be accumulating money for your child’s higher education, marriage, or even as simple as creating a retirement corpus. Among the different retirement plans in India, an ordinary annuity plan is a smart way to ensure you have a stable source of income even during retirement when income stops flowing in otherwise. Specific financial targets are easier to achieve rather than having an ambiguous target in mind.
Further, the practice of reviewing financial objectives can help ensure the goals will be met. In case of changes in certain factors beyond the policyholder’s control, amendments can be brought about accordingly. Another advantage of achieving financial goals using a systematic method like an annuity plan helps in decreasing stress and concerns that surround financial realities.
What are the types of goals that can be achieved using ordinary annuity plans?
Financial goals that are long-term, as well as short-term, can be achieved using ordinary annuity plans. Long-term goals of an individual like financial stability during retirement and paying off the EMIs on your home loan are some of them that can be met using ordinary annuity plans for financial goals that are long-range in nature.
On the contrary, short-term goals are objectives that an individual wants to achieve in the near future. Buying that new car, taking an international trip, or making a home renovation is something that can be contributed to using an ordinary annuity plan. Even if long-term goals are broken down into short-term goals, they become easy to achieve with each milestone acting as a checkpoint to the long-term objective.
What is an ideal age to purchase an annuity plan?
The insurance regulator, the Insurance Regulatory and Development Authority of India (IRDAI), does not prescribe any specific entry age to buy an annuity plan. Generally, these annuity plans are offered by insurance companies to those between the age of 20 to 90. These age brackets may differ based on the insurance company’s terms.
To determine what is an ideal age to buy an annuity product, there are several criteria such as an individual’s retirement goal, the present net worth and assets, risk appetite, and most importantly, the income required for a peaceful retired life. With these considerations in mind, the optimal age to buy an annuity plan can be used to maximise the individual’s goals. In this process, you can make use of a retirement calculator that aids in calculating several important considerations that are crucial for you to lead a happy retired life with a stable income.