What is immediate annuity?

An immediate annuity plan is an annuity plan that provides you with regular income immediately after buying the plan. With an immediate annuity plan, you pay a lump sum and start receiving regular payouts as early as the following month, depending on the frequency that you choose. Immediate annuity plans are a suitable option if you are nearing retirement and require an immediate and reliable source of income. This type of annuity offers you immediate benefits on your investment and ensures financial stability during your retirement years.

How does an immediate annuity plan work?

Here’s an example that can help you understand how an immediate annuity plan works:

Consider a scenario where Mr Sharma, a 59-year-old professor, is approaching retirement. Mr Sharma plans to retire next year and has a large savings amount. He wants to enjoy a comfortable lifestyle post retirement with a steady income to cover his essential and non-essential expenses.

Mr Sharma invests a lump sum from his savings in an immediate annuity plan. Basis his plan, Mr Sharma will start receiving a regular payout as early as the following month from the date of investing in the plan. The amount and the frequency of the payout are decided at the time of investment as per Mr Sharma’s preference and needs.

This income will continue for Mr Sharma’s life and will provide him with a dependable and regular source of money to support his post-retirement lifestyle.

Features of Immediate Annuity

The key features that make Immediate Annuity a good retirement plan are given below:

• Immediate Annuities provide you with an income as early as the following month of your purchase date, depending on the frequency that you choose. It provides a steady source of income and helps meet your immediate financial needs
• An Immediate Annuity plan offers a fixed payout that is free from market fluctuations. This makes it a safe investment as the risk is low
• Immediate Annuities offer tax benefits under Section 80C of The Income Tax Act, 1961. This provides additional financial benefits and can help maximise your savings

Benefits of Immediate Annuity

Below are some key benefits of an immediate annuity plan:

a) Regular income during retirement:

The plan provides you with regular income to meet your post-retirement needs. This ensures you stay financially independent even during retirement

b) Safe investment:

Immediate annuity plans offer a fixed payout that is free from market volatility. These plans are safe investments with low risk.

c) Flexibility in payouts:

You can choose to receive your annuity payouts monthly, quarterly, half-yearly, or annually, as per your requirements.

d) Plan flexibility:

Some annuity plans offer multiple flexible options, such as option to add your spouse to the plan, option to get your purchase price back, and more. These options help you customise your plan as per your requirements.

e) Tax benefits:

You can claim tax* benefits on the premiums paid under Section 80C of The Income Tax Act, 1961 and maximise your savings.

f) Ease of investment:

Immediate Annuities are an easy investment option for your retirement-related financial needs. With a one-time investment, you can receive a steady income for life.

Immediate vs. Deferred Annuity: Understanding Your Retirement Options

Immediate Annuity

Immediate annuity allows you to invest a lump sum of money with an insurance company. In return, you are given regular payments immediately after the purchase of the plan. The payouts continue for a predetermined period for the rest of your life. The immediate income stream can be crucial if you need immediate financial support in retirement. An immediate annuity plan can be helpful to cater to goals like house ownership, renovation of a house or any other retirement need that requires your immediate attention.

Deferred Annuity

In contrast to immediate annuity, deferred annuity plans have a waiting period after you purchase the plan. You begin to receive payouts only after this period is over. One of the benefits of a deferred annuity plan is that your money grows tax-deferred.

Unlike an immediate annuity, a deferred annuity provides flexibility in choosing when you start receiving payments. This means you can opt to receive payouts later in retirement, as and when the need arises. You can also convert a deferred annuity into an immediate annuity plan when it is time to start receiving regular income.

Is an Immediate Annuity a Good Option for You?

Factors to consider whether an Immediate Annuity plan is suitable for you are as below:

• You can choose an Immediate Annuity plan if you are close to retirement and require an immediate and steady income
• You prefer low-risk investments and want a regular income. Immediate Annuities can provide a regular income for life
• If you are looking for tax savings, you can consider an Immediate Annuity plan
• If you have a lump sum amount available for investment, an Immediate Annuity can be a good option

When should you buy an immediate annuity plan?

The right age to buy an annuity plan can depend on a number of factors. You can consider buying an immediate annuity plan if you are nearing your retirement. Immediate annuity plans are suitable if you need an immediate source of income to meet your financial needs.

On the other hand, if you want to receive your annuity payouts after a specified period, you can choose a deferred annuity plan. Deferred annuity plans offer you with regular income from a later date, as chosen by you at the time of purchasing the plan.

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