Pros and Cons of Retirement Annuity Plans

CA. Disha Sureshkumar Daswani

Have you planned for Retirement?

Why one needs to plan right now?

These are the basic points and the indeed ones that will dwell you to think why to think on the retirement plans.

  1. Start early to retire peacefully.

  2. Plan wisely, so that you don't have to worry at the golden stage of your life.

  3. Track and review your plan, now so that it relieves you financially secure at that moment.

Informed Financial planning gives you an edge for living your life in an easy-going manner.

It should start from the day when you start earning and it's not how much you earn, it's all about how much you save.

Once you have an approach that

“Income minus savings = Expenditure”

This is what retirement planning drives for.

This is the sole reason why we work so hard to enjoy the fruits of happiness and security in the future.

This tender age requires various medical expenditures, emergency funds and one needs to have a consistent flow of income.

So now you might be convinced that why planning for retirement is so crucial and wait if you want to know more.

Just read further to get all the clarity in terms of retirement plans, benefits, and cons.

Are you aware of various retirement plans?

If not then you are at the correct place to get all the vital information about Retirement and Annuity plans.

Proper retirement plans are definitely the need to sustain financial security during that times.

Let us examine The pros and cons phase and ease your dilemma.

Before that, do you know what an “Annuity plan” is

It is a contract between the Insurer company and buyer by agreeing on certain terms for a certain period either lump some or over a period of time.

Advantages of Retirement annuity:

1) Consistent flow of income -

It ensures continuity of cashflows of pension and incomes on a consistent basis so that the individual does not suffer any financial crunch during the golden period of their lives. This is the major reason why one shall approach a retirement plan.

2) Protects against inflation changes -

The plans are flexible and also considers the changing environmental factors, hike in prices, growing medical expenditures. This helps you to determine that how much of the corpus that one shall have when the retirement period starts. Considering all the inflation factors and estimated future conditions in mind,it acts as a planned and forecasted decision for future cash flows that one will need.

3) Savings in Tax -

Income tax has given this privilege to get the deductions under Section 80C and exemptions under 10(10)D, which helps in saving taxes. Thus the Government has educated and given us the benefits appropriately that one must consider in the current times to avail the tax benefits of “Retirement plans”. Do not forget to take your deductions.

4) Guarantee in Principal Amount -

The annuity plan ensures that one will receive the principal amount invested as a result of which the person remains insured and secured. The main intention that the plan has ,is not to erode your principal amount nor to have profits but only to have regularity in cashflows so that the retired person can have proper benefits of availing the retirement plan.

Every coin has two sides. So let us look into the cons too.

1) Inflexibility of Plan -

As the plan focuses on long-term vision, premature withdrawals are difficult and partial withdrawals come up with strict rules and regulations that makes it difficult for a person to adopt retirement and annuity plans, due to inflexibility in nature. Thus one needs to have proper research for deciding which plan one needs to take.

2) Lower rate of investment -

This is comparatively lower as compared to other market strategies as one can say that leverage plays the game here. The market investment plans would definitely have good and potentially higher profits, which is not the case here due to this reason.

"Higher the risk, the higher the returns".

Thus it has comparatively lower returns than other market schemes.

3) Higher cost of purchase -

One should do proper research regarding the commission and other management fees as these higher costs do not allow you to evaluate the retirement plan as security and one considers it as burdensome or costly. This restricts an individual to give up the thought of having a “Retirement Plan”

Having more questions in mind?

Let us answer that too.

Q1) Do you know how does a retirement annuity plan work?

It is your lump some payments converted for future steady cashflows. One cannot gain profits, the main intention is that once you pay all your monetary payments lump sum you get the desired corpus that helps to sustain after you retire.

Q2) Now one will ask, what are the benefits of retirement annuity?

It allows you to have consistent flows of income when you retire and that is holding the most important benefit why one needs a retirement plan gets along with being cautious of meeting uncertain medical or emergency expenditures.

Q3) Are you aware of the downsides of an annuity?

The major downfall you can say is lower rates of returns due to higher cost involved and as compared to other investments. Proper research that examines the fees, and the costs involved that one needs to pay shall be determined to evaluate whether this scheme would be appropriate or not else, it will be a costly retirement plan.

Synopsis for the entire Retirement and Annuity plans.

  1. The financial security that one needs during old age is very essential. Therefore it is advisable to always plan these things and not delay.

  2. Proper informative research after duly considering every plan, its benefits, and its cost analysis is needed. To not fall into plans that boast that,” Have supreme profits during retirement”. Do never fall into their trap as the essential element is to provide regularity in cashflows after one retires.

  3. Finally choose your retirement plan and annuity plan wisely, taking all your requirements, understanding conditions, that will help you to choose the suitable plan for you.

To conclude

“If  Financial planning and Life planning are done wisely, this is the best decision one can ever take”

Go choose your “Retirement and Annuity plan” for implementing the above lines.

Happy Reading.

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