May 21, 2024

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All about Annuity and more

16 Things You Need to Know Now About Annuities | Investing 101 | US News

The post-retirement period is called the ‘Golden Years’ of an individual’s life. To keep it so, you need to be free of all the worries of the world, especially when it comes to finances.

An annuity plan is one of the many ways in which you can be financially secured and independent. In this article, let take a look at this plan and know more about it.

What is an Annuity?

It is a financial product which is designed to offer you a steady flow of income, either for life or for a stipulated duration. This plan protects your finances with a premise that you may outlive your resources post-retirement. Based on the pay-out option you select; you can receive either a lump sum or regular instalments during the accumulation period.

What are the types of Annuity plans?

Broadly, this plan is divided into two main types. Let’s discuss them in brief here:

Deferred Annuity: This plan requires you to pay premiums and build a corpus until a specified duration. For these plans, the payment begins after a particular term, as specified by your plan. 

Immediate Annuity:

In this plan, you pay a lump sum amount instead of monthly instalments over a long duration. This plan pays you a regular payout.

Generally, individuals who are about to retire prefer buying this plan. The payout commences immediately, and you can receive a monthly income as soon as you retire.

How does this plan work? 

Here’s a stepwise detailing of how an annuity plan works:

Step 1: Here, you zero down the plan that is based on your needs and goals.

Step 2: You make a lumpsum payment towards the plan.

Step 3: Several factors, such as the annuity tenure and premiums, will determine the income payout that you will receive.

Step 4: You will receive payments either on the set dates or monthly, quarterly, or yearly.

How to use an annuity calculator?

You will have to put in the following information exclusively while using the calculator:

  • Your income details: This is the key parameter needed to use this calculator since it has a direct bearing on your ability to save money.
  • Demographic information: Your current age and expected retirement age is a crucial data point in the annuity calculator to determine the accumulation phase of this plan.
  • Monthly expenses: This also includes your liabilities (if any). If your expenses are low, there is a high potential for more savings and vice versa. This information greatly affects the type of annuity which you should opt for.

Along with these factors, many annuity calculators also take into consideration the inflation trends since it has a prolonged effect on future savings. If the rate of inflation goes up, then you must save more to build a specific retirement corpus.

Once you click on calculate the premium, the calculator will show you all the financial details and estimated premium calculations of the plan.