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What is the right age to buy an annuity plan?

dateKnowledge Centre Team dateSeptember 03, 2021 views224 Views
Annuity Plans | Buy Best Savings Plan | Guaranteed Savings

You may have multiple financial goals set for yourself, once you are finally free from the duties of your profession. However, securing a regular income for your sunset years is more important than any other goals. When you think of retirement, you wish to lead a life that is at least as comfortable as it is today, without the need for financial dependence on others.

This is not just wishful thinking, but rightful thinking because, after decades of hard work, you cannot spend your sunset years worrying about money. Once this need has been satisfied you can aim to fulfil the other aspirations. Annuity plans are designed to help you fulfil this financial need, hopefully, without the worry of outliving your retirement corpus.

What Are Annuity Plans?

Annuity refers to a regular payment, for example, receiving Rs. 1 lakh every year. Although the literal meaning of annuity is annual payments, in the case of pension annuity means any mode of regular payments. Thus, an annuity helps you get a steady flow of income or cash inflows post-retirement.

The best annuity plans in India can offer you lifelong income. These are long-term safe investment plans which preserve your invested capital for a long time and generate regular income for you. Many lifetime annuity plans also help you leave a legacy for the next generation with the option of return of purchase price upon your demise.

When To Start Annuity?

Ideally, you should plan your annuity such that the regular amount replaces a large part of your pre-retirement income. You can ensure this in the following two ways:

  • Invest a large sum of money in a deferred annuity plan
  • Build your corpus using a high growth investment and then use immediate annuity plans

Most annuity plans allow you to start investing at the age of 40. Thus, if you want to invest directly into an annuity plan this is the minimum age you should start. However, annuity plans are one of the safest investments of all time. Thus, the rate of return is low.

So, if you are looking for growth, investing directly in annuity plans may not be the best investment decision. Yet, you can invest your windfall gains into deferred annuity plans and reinvest the annuity income if you do not need it. This way you can keep your capital safe and enjoy better growth as well.

Seven Types of Annuity Plans

1. Deferred Annuity

You can invest a large sum of money now, but you can postpone your regular income for a few years. The money continues to grow in the idle period and the annuity will start on the increased amount. You can also invest regularly for a few years to build your corpus.

2. Immediate Annuity

This annuity starts immediately after the investment. For example, you invest Rs 10 lakhs now to receive a monthly income of Rs. 10,000. You will receive the first payment one month after the investment.

3. Life annuity

You will get annuity pay-outs in the opted frequency (monthly/quarterly/yearly) until your demise. The annuity pay-outs stop thereafter.

4. Life annuity with return of purchase price

You will get annuity pay-outs in the opted frequency (monthly/quarterly/yearly) until your demise. After your demise, the corpus used to purchase the annuity is paid to your nominee.

5. Annuity Payable for a Guaranteed Period

The annuity is paid for the guaranteed period, even after your demise. Annuity stops either on your demise or on completion of the guaranteed period, whichever is later.

6. Joint life annuity

Annuities are paid until either you or your spouse is alive.

7. Joint life annuity with return of purchase price

Best for protecting pension for your spouse and leaving a legacy for your children. These annuities are paid until you or your spouse is alive. After the demise of both, the nominee will get the amount initially invested.

How Much Money Will You Need?

The first step to annuity planning is forecasting the income flow needed after the requirement. This is the figure you want to receive as annuities and therefore your lumpsum corpus should be planned accordingly. For deferred annuities, it is best to start several years in advance so that you can start allocating a portion of your income into relevant life insurance plans.

When projecting your post-retirement expenses, you will note that the types of expenses would look very different from what they are today. Expenses related to children may not exist then because s/he would be earning and independent. Costs related to commuting to work, leisure trips, etc may also come down if you prefer spending more time home with family and friends.

A quick back-of-the-envelope calculation will show you that only about 20-30% of your monthly income goes towards “living costs”. The remaining money is either spent on EMIs, lifestyle, children, or future savings.

So, if you are currently earning Rs. 1 lakh a month, you are spending approximately Rs. 20,000 - 30,000 on your necessary living needs. This amount, adjusted for inflation, will translate into approximately Rs. 90,000 in 30 years. So, if you are 30 years old now, this is the amount you will need, each month, to start your retirement at 60.

To achieve such a post-retirement income starting at the age of 60, you will need a corpus of about Rs 2.5 crores.

Guaranteed Income for Life

The Guaranteed Income4Life, from Canara HSBC Oriental Bank of Commerce Life Insurance Company, is an option you should consider if you are looking for an income stream to match a future expense, such as post-retirement.



You can “accumulate” by investing during the premium paying term and defer the pay-outs. The policy offers some additional features under the premium protection option. Premium protection will financially secure the goal in case of your untimely demise or disability within the policy tenure. Some key highlights of this plan:

A. Future premiums are waived off in case of untimely demise or permanent disability

B. In case of untimely demise, the nominee will receive the sum assured immediately. The nominee will also receive the fund value at the time of maturity. They can opt to receive the fund value in regular/periodical streams or as a lump sum.

Pension4Life

Another smart policy, from Canara HSBC Oriental Bank of Commerce Life Insurance, to avail a regular guaranteed income stream in line with your expense projection is the Pension4life Plan, wherein you will be paid the pre-defined amount of annuity each month post-retirement. This policy gives you a wide range of choices to select from, besides giving you a guaranteed lifetime income that is transferred directly to your bank account. The joint annuity options ensure that you remain stress-free about your partner’s expenses in case of your demise. There is another silver lining that returns the entire corpus to the family in case of your demise.

Carefully planning your retirement is essential so that your lifestyle continues as is even after your full-time employment comes to an end. Your money, saved throughout your career, then becomes the financial nest that would give you a predictable stream of cash flows. These savings policies issued by life insurance companies such as Canara HSBC Oriental Bank of Commerce Life Insurance are reliable because of the brand trust, legacy of operations, and excellent track record.

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Frequently Asked Questions (FAQs) for Retirement and Pension Plans

The premium is one of the most important factors to consider before buying a policy. Many people buy a life insurance policy with a high sum assured but are unable to process the premiums for the entire premium payment tenure. You can get a better idea of the premium outgo with the Premium calculator available in the ‘Tools and Calculator’ section of www.canarahsbclife.com.

The Invest 4G plan offers three benefit options to choose from. If you have opted for the Life Option or Whole Life Option, the insurer will pay the nominee(s) death benefit if the policyholder meets with an unfortunate incident. However, in the Life Option with Premium Funding, the policy continues even after the death of the policyholder. The company pays the remaining premiums until the policy matures.

Life is unpredictable and so it is important to prepare for all eventualities. If you regularly save a substantial amount of your income for retirement, the corpus may expand to a comfortable level before retirement. In case you become disabled and are unable to contribute to the retirement plans, most plans will continue to multiply your savings. The amount already accumulated will continue to grow and besides the existing plans you can also choose to invest in pension schemes specifically designed for people with disability.

Investment in ULIPs like Invest 4G plan qualifies for tax deductions under section 80C of the income tax law. The maturity benefits of ULIPs are also tax-exempt under section 10 (10D) of the Income Tax Act, 1961. However, if the premium paid during the policy term is more than 10% of the sum assured, the maturity proceeds will be taxable.

The concept of early retirement is catching up fast in India, but there are no specified ages for early retirement. While in some western countries the age between 35 and 45 is considered favourable for early retirement, in India the ideal age is 45-50 years. With the right planning and investments, it is not very difficult to retire early.

At the age of 35-40, people generally have several responsibilities such as children’s education and various EMIs. It is difficult to spare a substantial amount of income for retirement. Depending upon the needs of the household and the lifestyle, one should aim to save around 40-50% of his/her income. Around 10% of the income should exclusively be allocated for retirement planning. Here are some tips to choose the best retirement plan.

  • Focus on your needs: It is easier to formulate a strategy when the goal is clear. Make an estimate of the amount required to sustain your life. Take inflation into account and zero in on the targeted corpus.
  • Research thoroughly: Conduct thorough research before investing in any financial product. Read the term and conditions properly and try to understand how an investment product fits your needs.
  • Consider different products: The market is awash with all kinds of investment products. Do not follow conventional advice as the need of every person is different. Take into consideration all the suitable products, conduct an objective analysis and then invest.

Owning a house is a cherished dream for many. There are several ways to save for a new house, but in urgent cases, people may be tempted to withdraw from their retirement fund. There are various financial products for retirement planning, and all have different withdrawal rules. In the case of the National Pension Scheme, partial withdrawals for special purposes like buying a house are allowed only thrice during the policy tenure. However, to avail the withdrawal facility, you should be an NPS investor for at least 10 years and you are permitted to withdraw only 25% of your contribution. If you have a PPF account, you can withdraw 50% of the accumulated amount, but only after staying invested for at least 6 years. The Invest 4G plan also allows partial withdrawals after five years of investment.

The quantum of monthly savings depends on the specific needs of the buyer. Financial advisors, however, suggest people save around 15% of the monthly income for retirement.

Retirement plans such as NPS have a very low entry threshold. It is also open to all and anyone can open an NPS account and start saving. A small business can also invest in Invest 4G plan from Canara HSBC Oriental Bank of Commerce for as low as Rs 5000 every month.

The choice between paying off a student loan or start a retirement account is not a difficult one. Starting early for retirement planning has its own advantages but extending the student loan will increase the interest burden. You will have to find a balance between the two. Try to pay off the student loan as soon as possible, but do not hold back on investing in a retirement account.

Most people nominate their spouse to receive retirement benefits in their absence. But a spouse is not automatically entitled to be the beneficiary of a retirement account owned by the other spouse.

Gold is a safe investment asset and investors often flock to the yellow metal to stabilise their portfolios. Holding a small quantity of gold can be considered as the intrinsic value of gold remains intact. You can also choose to have an exposure to gold through ULIPs. ULIP funds invest in a variety of asset classes and some fund options also have a small exposure to gold. You can choose fund options with gold to have a small and indirect investment in gold.

While there are no explicit rules barring the use of retirement account to finance real estate, it may not be advisable to do so. For instance, you are allowed to avail loan from the PPF account from the third financial year. The loan can be used to finance real estate, but it would defeat the purpose of having a dedicated retirement account.

While there are no explicit rules barring the use of retirement account to finance real estate, it may not be advisable to do so. For instance, you are allowed to avail loan from the PPF account from the third financial year. The loan can be used to finance real estate, but it would defeat the purpose of having a dedicated retirement account.

The government has allowed all central government pensioners to open a joint account with their spouses.

Vesting date or age signifies when your pension plan’s accumulation phase is over and the distribution phase can begin. For example, in a deferred annuity plan, you may have a vesting date which is 10 to 30 years away depending on your age at entry. You will continue to invest or stay invested till the vesting date. After the vesting date or age, you can start receiving the pension or withdraw the money from the plan.

The steps may differ from plan to plan. However, you can buy the online retirement plans following the steps below:

  • Retirement Calculator: Use a retirement calculator to estimate your corpus need and expected monthly investment amount to achieve it
  • Choose Plan: Select the online retirement plan you want to start investing in
  • Contact Information: Fill in the personal details including the contact information. Make sure to put the correct e-mail ID which you can access since all future communication about the policy will take place via e-mail.
  • Define Your Investment: Select the goal, investment term, investment frequency and amount you want to invest (based on the calculator estimate)
  • Select Fund Allocation: Online retirement plans give you the option to invest in multiple assets including equity funds. You can select the ratio in which your premium will be allocated to these funds as per your risk appetite. Then select one of the portfolio rebalancing strategies.
  • Select Withdrawal Plan: You can withdraw money based on set milestone or systematically from the plan after the lock-in period. Select the options for withdrawal as per your plan.
  • Review Plan & Investment Details & Complete the Application Form

You can pay the premium amount before or after completing the application form to start investing.

The best time to plan your retirement is when you are planning your career. However, this may not be the time when you really start investing money for your retirement. You must start investing in your retirement plan as soon as you start earning.

Retirement is the only financial goal you cannot repair with other means of funding like a loan. Thus, developing the habit of investing with every income you have is the best way to have a comfortable retired life.

Insurance allows your family, especially your dependent spouse to continue living without financial worries if anything happens to you. Also, insurance may help you save enough for retirement in case of permanent disabilities. Additionally, life insurance retirement plans allow you to build a good retirement corpus with bonus additions.

Yes, you can change the nominee of the policy anytime you need. If you are using an Electronic Insurance Account (EIA) to manage your policies, you can change the nominees anytime from this account. Otherwise, you can contact the customer care to update the nominations on your policy.

You can opt for auto-debit of the premiums from your savings account. You can also pay the premiums online using your debit card, credit card or a payment wallet.

You can get Rs. 1 Core pension plan using the online retirement calculator. The calculator will assess your eligibility and provide you with the probable monthly or annual investment to achieve the goal. If the amount seems feasible you can complete the purchase online or set an appointment for a qualified advisor to help you in the process.

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