Retirement is the phase of life where all the hard work of the previous year’s pays off. It is the way you have saved and invested in your earning years which determines the quality of your life after you stop working. One way to have a financially secure future and be independent in your retirement years is to have an annuity plan. Having an annuity plan as a part of your retirement ensures regular income payouts once you stop working.
An annuity plan is a retirement income tool where you can receive regular income payouts once you stop working. When you buy an annuity, you are required to make a series of payments towards your policy, which are further invested in different financial instruments. If you find it difficult to make recurring payments, you can instead make a lump sum payment too. Also, you can decide the frequency of the income payments from your annuity and how you want to receive them.
If you choose an immediate annuity plan, you will receive payouts almost immediately after purchasing the annuity plan. But, if you want to receive the payouts after a few years, you can choose deferred payments. Using a retirement calculator can help you figure out your financial needs after retirement and accordingly buy an annuity plan. With every financial instrument, there are some myths that are created and cause the spread of misinformation amongst individuals. It is important to be aware of the myths are surrounding annuities so that when you buy one, you make an informed decision.
Myths surrounding annuities vs. the truth
An annuity plan is usually a part of every individual’s retirement plan. When you tell people around you that you are buying an annuity, you will hear several myths and assumptions. It is important that you know the truth before purchasing one. Here are some common myths surrounding annuities vs. the reality:
An expensive product
The cost of your annuity plan depends entirely upon the retirement plan that you have selected. It can be expensive or cost-effective based on the type of policy and its payout. You can use a retirement calculator to determine your annuity needs. Several individuals also use their annuity to build wealth, where a portion of their annuity is allocated towards equity funds. Doing this allows an individual to have a reliable source of income along with generating returns on their investments.
Offers insufficient returns
The returns on your annuity plan depend upon the plan that you have opted for and the funds that you have invested in. If you have invested in a fixed annuity policy, your investments are safe, but they may not reap huge returns. This is because several individuals buy an annuity to protect their financial assets rather than wanting them to grow exponentially. However, if you feel you are losing on returns, you can choose a mix of fixed and variable annuities. This ensures that you generate moderate returns with moderate risk.
Difficult to understand
The reality about most annuity plans is they are simple to understand and straightforward. You can simply buy an annuity plan and invest a portion of your money in the policy. When your plan matures after retirement, you will receive your investment along with the interest accrued as monthly payouts. You can also directly contact your annuity provider if you have doubts or need any help.
If you have savings, you do not need an annuity
Several individuals avoid buying an annuity plan since it involves investing money. They are wary of losing their hard-earned money if the investments cannot perform. They instead choose simply to save enough for retirement. However, they do not take into consideration inflation along with the rising healthcare costs. Savings are rarely enough to take care of one’s retirement years. Having a supplement of savings with regular income is needed, which is exactly what an annuity plan offers.
An annuity is a plan that offers you income for your retirement years. Having a recurring source of income during your golden period ensures that you have sufficient funds to meet your needs and live the life you want.