Friday, July 12 2024
Source/Contribution by : NJ Publications
Introduction
Retirement is considered to be the golden phase in your life. It is that time in your life when you engage in activities you enjoy or have always dreamed of pursuing. At this age, no one wants to worry about the income & expenses.
Retirement is also a crucial period of your life because your regular income stops. Will your lifestyle & medical expenses reduce after retirement? No, it continues & may increase due to age. Without comprehensive & mindful financial planning, even your golden years can suffer. So the need of the hour is to arrange for a source of regular & guaranteed income to fund your retirement goals & expenses. This is where retirement oriented life insurance plans come to the rescue. Immediate Annuity Plans are one such investment option that provides a guaranteed income for life.
What is an Immediate Annuity?
In an immediate annuity plan, you will start receiving the annuity (regular income) immediately after you invest the lumpsum amount. This income is fixed and guaranteed for the term opted / rest of your life. You can ask for a monthly, quarterly, half-yearly or yearly annuity payment.
Options Available
Single Life with return of purchase price (ROPP)
You will get regular income till you are alive. Upon your death, the annuity stops and the purchase price is returned to the nominee.
Joint Life Annuity with return of purchase price (ROPP)
You will get regular income till you are alive. Upon your or spouse's death, the annuity continues to the survivor. Upon death of the last survivor, the annuity stops and the purchase price is returned to the nominee.
Tax Implications
The tax implications are as follows:
a) On the premium paid: The premium paid is allowed as a deduction under Section 80CCC. This is including the maximum allowed limit of deduction of INR 1.5 lakhs under Section 80C..
b) On annuity received: Annuity payments qualify as income in your hands. They are added to your total income and are taxed at your current & relevant income tax slab rates.
Let's understand immediate annuity with an example:
Rahul, a 60-year-old businessman, purchases an immediate annuity with return of purchase price. He paid a lump sum amount of ₹100 lakh. He will get ₹50,000 fixed every month till he is alive.
Rahul starts getting regular income of ₹50,000 from the next month onwards. He does not have any other income source, so his income is below taxable limits. Therefore, he does not have to pay tax on this Immediate Annuity Income.
If Rahul unfortunately passes away at age 70, his nominee would receive the guaranteed ₹100 lakh as death benefit. This amount helps him to secure his family's financial future in his absence.
In all Rahul paid ₹100 Lakh,
Enjoyed ₹60 Lakh in his retirement years.
Plus the family gets back ₹100 Lakh upon his death.
Why an Immediate Annuity Plan
Being a retired person, as your regular income stops, you don't invest to spend later. You start using your investments or savings for all your needs.
Immediate Annuity plan is a perfect solution as they help you create a regular, guaranteed & fixed income from the wealth that you have accumulated during your earning years.
Let us see some important factors to consider:
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Independent: If you do not have an income, you have to depend on others. With a regular income from immediate annuity, you live life on your terms.
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Increase in Life Expectancy: The average lifespan has increased from 60 years to over age 74 in the last few decades. With better healthcare facilities & improving quality of life, it is expected to increase further. Hence, you need a regular income source as long as you live.
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Medical Issues: Health problems & health care expenses increase with age. A guaranteed regular income will help to manage them efficiently.
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Market Volatility: This plan shields you from stock market fluctuations and investment risks. In contrast to mutual funds, equities, bonds, your income from an immediate annuity plan is not impacted by the market volatility or changes in interest rates.
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Leave a Legacy: This plan helps you to pass on your legacy to your loved ones. With return of purchase price (death benefit), your nominee gets back the premium paid. This is a very attractive feature to secure your family's future after your demise.
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Simple Plan: Immediate annuity is a simple plan to understand & decide upon. Once you purchase, you don't need to make further decisions or monitor performance.
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Guaranteed income: Annuities provide a guaranteed regular income for as long as you live.
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Safety Of Money: In your retirement years, you want an investment that offers a stable, regular income and more importantly safety on your investment amount. Retirement is not an age where you take risks on your hard earned life's savings. With Immediate Annuity, your money is safe & secure.
Conclusion
Retirement planning is crucial to ensure a comfortable and financially secured future.
Immediate Annuity could be the best investment decision to enjoy the second innings with your loved ones. The right decision today will make sure you do not have to depend on others in your old age.
So, if you are nearing retirement and you have a retirement corpus available, invest in an immediate annuity plan and get assured income for your lifetime. A Plan that frees you from the worry of income post-retirement.
