Written by : Knowledge Centre Team
2025-08-02
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14 minutes read
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Retirement is one of those financial goals you must start planning for at an early age. The need for adequate savings and effective financial planning of living and expenses post-retirement cannot be emphasised enough. This is because post-retirement, you would not want active employment for income.
Thus, you must start using retirement plans to secure yourself financially. These plans can provide you with both annuities as well as lump sum benefits.
One of the questions you can consider for your retirement planning is about receiving retirement benefits in a lump sum or in annuity mode. Ideally, upon retiring, you will need both kinds of financial assistance. However, planning helps you save a lot of hassle and money in taxes and otherwise.
Key Takeaways
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What is a Retirement Annuity?
A retirement annuity is a retirement plan that provides a steady stream of income. The annuity can continue for a limited period or lifetime as per your choice. In this plan, you can avail of a fixed or growing monthly or annual income. You can fund the annuity with regular or lump sum investments in the plan.
You can enjoy the flexibility to choose from a wide range of payout options to meet your specific retirement needs. The following are the advantages of a retirement annuity plan:
There will be a guaranteed flow of income throughout the retiree’s life
This plan can also provide a lifetime income for the dependents
It comes with lifetime income benefits
One gets a choice of investment options
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Features of a Retirement Annuity
A retirement annuity gives you a reliable way to convert your savings into a steady income during your retirement. It ensures that you enjoy financial independence even when you stop earning.
- Guaranteed Income for Life: When you invest in a retirement annuity, you receive a fixed income at regular intervals throughout your retirement. This steady stream of income allows you to manage daily expenses and maintain your standard of living without financial stress.
- Multiple Payout Options: You can choose how you want to receive your annuity. Whether it is monthly, quarterly, or annually, the plan lets you select the frequency that suits your lifestyle. Some plans also offer lifetime income for both you and your spouse.
- Choice of Annuity Type: You can opt for immediate or deferred annuity options based on your needs. An immediate annuity starts payouts shortly after you invest, while a deferred annuity begins payouts after a chosen period, helping your savings grow further.
- Return of Purchase Price: Some retirement annuity plans offer the option to return the purchase price to your nominee after your death. This feature ensures that your invested capital is not wasted and your loved ones remain financially secure.
- Tax Benefits: You may enjoy tax benefits on the premiums paid under Section 80CCC of the Income Tax Act. Additionally, some parts of the annuity payouts may qualify for favourable tax treatment depending on the plan structure.
- Protection Against Longevity Risk: One of the biggest risks in retirement is outliving your savings. A retirement annuity helps you tackle this by offering lifelong payouts, allowing you to focus on your well-being rather than worrying about money.
Types of Annuities in India
Now that we know what retirement annuity plans are, let’s look at some popular annuity plans and their features:
- Deferred Annuity: A deferred annuity is a long-term annuity plan where you can invest and grow funds before starting an annuity. In this annuity plan, you can invest in a lump sum or invest a regular amount for a few years. There is always a buffer between starting your investment in the plan and the start of the annuity. The age at which your annuity will start from the plan is called as vesting age in the plan.
- Immediate Annuity: In this type of annuity plan, the pension becomes payable immediately after your investment. The premium is paid in a lump sum at the start of the annuity plan.
Must Read - Benefits of Buying the Best Annuity Plan for Retirement
- With Cover Pension: This annuity plan is a good option when the spouse is financially dependent on the retiree. There is also an insurance cover in this plan that provides a lump sum amount to the spouse after your demise.
- Without a Cover Pension: In this annuity plan, there is no life cover. The plan pays out the remaining corpus in case of your demise. You can invest in this annuity plan jointly with your spouse. This will allow your spouse to receive a pension after you without the hassles of reinvesting the money.
- Unit Linked Pension Plan: A small part of your funds in the unit-linked annuity plan is allocated to equity. This allows higher corpus growth over the long retirement period, which can extend to more than two decades.
Must Read - Annuity Terms You Should Understand Before Retire
What is a Lump Sum Payment Retirement Option?
A lump sum payment is a one-time settlement that is made by your employer or a retirement plan. In this plan, the retiree will get a large sum of money only once, which can be used to fulfil retirement needs.
Advantages of lump sum benefits received at retirement:
Good for various post-retirement dreams and plans.
Your dependents will receive the money even after your early demise.
A lump sum amount can help in small and big adjustments after retirement, such as moving cities.
It can be utilised for children’s education or marriage, or to pay off any ongoing loans.
Features of Lump Sum Retirement Option
Choosing a lump sum retirement option gives you complete control over your retirement savings. Instead of receiving regular payouts, you get a one-time amount that you can use based on your personal goals and financial plans.
- Full Access to Retirement Corpus: You receive the entire accumulated amount in one go. This gives you the flexibility to manage your finances independently and make decisions that align with your lifestyle, such as clearing debts, making large purchases, or investing in new opportunities.
- Flexible Investment Opportunities: With the full amount in hand, you can invest in various financial instruments such as mutual funds, fixed deposits, or senior citizen savings schemes. This allows you to grow your retirement funds based on your risk appetite and income goals.
- Support for Major Life Goals: A lump sum can help you fulfil long-pending goals like buying a retirement home, gifting to children, or pursuing personal hobbies. It gives you the financial freedom to shape your post-retirement life the way you want.
- Estate Planning Made Easier: You can allocate a portion of your lump sum for estate planning. This helps you pass on wealth to your family in a structured way, supporting their future without financial uncertainty.
- Liquidity in Emergencies: Life after retirement may still bring unexpected expenses. A lump sum amount ensures that you have enough liquidity to handle medical emergencies or urgent financial needs without depending on others.
- Customised Financial Management: You can consult a financial advisor to create a personalised income strategy using your lump sum. This ensures that your funds last longer and continue to meet your changing needs throughout retirement.
Difference Between Lump Sum vs Annuity for Retirement
Here’s a summary of the factors and benefits of annuity and lump sum payments at retirement:
| Lump Sum | Annuity for Retirement |
|---|---|
Single large payment | Secures regular cash flow |
Helps pay off debt, look after remaining financial goals, buy, build or move a house. | Helps look after health, kitchen and lifestyle expenses. |
Planning is important to receive tax-free amounts. Otherwise, the amount may be affected by the tax.. | Regular pension is treated as salary and taxed at slab rates, except for payments received from PPF, ULIP or deferred annuity plans from life insurance companies. |
Examples include Maturity benefits from NPS, PPF and similar long-term investments. Gratuity and leave salary for employed retirees. | Examples include: Regular income payouts from EPS, ULIPs, PPF (partial withdrawals), or life insurance pension plans. |
Also Read - How to Invest in the National Pension System?
Should You Choose Lump Sum or Annuity at Retirement?
The selection of an annuity or lump sum retirement plan primarily depends on your goals for your retirement and the need for a regular income. Ideally, you need to have both.
While a regular lifetime pension is a must, the lump sum amount will help you settle any remaining financial goals or loans. Thus, you can easily create a pitch for a peaceful retirement during your early years in retirement. However, you need to plan for both payments while you are still employed.
As a financial goal, you can assume to receive up to 25% of your total retirement kitty in a lump sum. For example, if you plan to have a retirement fund of ₹ 5 crores at the age of 60, you may want to pull ₹ 1 crore aside in a lump sum while you invest the rest for an annuity.
The annuity payments will keep you financially independent and help you in meeting your everyday expenses.
You must contribute 10 -15% of your annual income to a retirement plan from the day you start earning. Once you reach retirement age and your regular income stops, you will start getting a steady income from the retirement plan you have been contributing to. That is how retirement plans work.
Final Thoughts
Every retirement plan has its features to provide either a lump sum or annuity payments after maturity. Plans like Promise4Growth Plus from Canara HSBC Life Insurance allow you to grow your wealth steadily over time while offering life cover. You can invest during your working years and build a sizeable corpus through disciplined contributions. At retirement, the accumulated fund can help you draw a tax-efficient income, ensuring financial independence that lasts through your lifetime.
Disclaimer - This article is issued in the general public interest and meant for general information purposes only. The views expressed in this blog are solely those of the writer and do not necessarily reflect the official policy or position of Canara HSBC Life Insurance Company Limited or any affiliated entity. We make no representations or warranties of any kind, express or implied, about the completeness, accuracy, reliability, suitability, or availability with respect to the blog or the information, products, services, or related graphics contained in the blog for any purpose. Any reliance you place on such information is therefore strictly at your own risk. You should consult with a qualified professional regarding your specific circumstances before taking any action based on the content provided herein.
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