What is annuity and how can it be used by retired people1 min read . Updated: 12 Sep 2018, 11:23 AM IST
If you have a lump sum already, you can buy an immediate annuity product or you can invest in pension plans that help you accumulate a corpus first and then use the corpus to buy an annuity.
An annuity product is a financial instrument that gives periodic income for life. Annuity products are sold by life insurance companies and help address an important concern of regular income for retired individuals.
If you have a lump sum already, you can buy an immediate annuity product or you can invest in pension plans that help you accumulate a corpus first and then use the corpus to buy an annuity. These are called deferred annuity plans. Pension plans offered by life insurance companies and even the National Pension System (NPS) come in this category because they first help you build a corpus and on retirement require you to buy an annuity product with a part of that corpus.
Immediate annuity, on the other hand, doesn’t need you to commit to accumulating a corpus. Just take your money and buy an annuity from any insurer that provides immediate annuity.
However, when shopping for an annuity product, keep in mind that depending on the type of annuity you choose, you get a fixed payout for life.
So annuitising the entire retirement corpus means you may not be able to inflation-index your income.