Annuity: All About Annuity In Retirement Portfolio

There is only one investment portfolio providing monthly income with the least risk to the retirees, “Annuity.” Though annuity yields low returns, they are a safe and secure option for the older generations.

Annuity benefits are given out after retirement, and the pay-out can be received monthly, quarterly, half-yearly, or yearly, depending upon the beneficiary’s selection.

What Is Annuity?

An annuity is a very safe investment option, but yes, it pays out significantly less yield. Investment in annuity suggests that the person will receive a fixed, stable payment after his retirement. You can invest your entire amount in one time or invest small -small amounts in multiple payments. You can also opt to get your paybacks either monthly, quarterly, half-yearly, or yearly.

When you start investing in an annuity, it is called the accumulation phase, and when your payments stop and the time when you start receiving your pay-outs is said as annuitization phase.

Once you reach out annuitization phase, you don’t need to make any payments; you will start receiving your payments either for a fixed period or the beneficiary’s remaining life period. Many features and multiple variants are rolled out by the insurance companies to invest in annuity more attractive.

Is Annuity A Life Insurance?

No, an annuity can be said as the opposite of life insurance. Where life insurance benefits are availed after a person’s death, annuity benefits are given to the individual during his lifetime. It is a product of insurance providers like SBI, HDFC, LIC, etc. It resembles more a debt-based plan.

If a person outlives the average age, the risk comes on the company and not the individual as he will continue receiving money after accumulation phase time.

Difference Between Annuity And Life Insurance

1. The annual contract liquidates gradually accumulated funds, whereas life insurance provides a gradual accumulation of funds.
2. One take annuity for their benefit, but the life insurance is taken mainly for the benefit of the dependent.
3. In an annuity, mostly, the payments stop at the owner’s death, whereas for Life insurance, the payments start when the owner dies.
4. The premium for an annuity is calculated based on the customer’s longevity, but in Life Insurance, the premium is calculated based on the person’s mortality.
5. An annuity can be said to protect staying too long, whereas Life Insurance is the protection for staying too short.

Features Of Annuity

1. Premium Options

On the type of Annuity account you wish to choose you can invest in a deferred and immediate annuity in case you want a single premium purchase. This is mostly the case with the employees getting money from the employer-sponsored retirement plan, insurance policy, plot, or land sale.

You can pay small amounts at equal intervals in a deferred annuity until the time you start receiving the payments. You have to pay till the time you start receiving.

2. Death Benefit

The annuity also gives death protection, which means that if you die before your pay-outs start, your family will receive the amount you have paid the premium.

If you die before the commencement of your pay-outs, you will receive money depending upon the type of your annuity.

3. Tax-Deferred Growth

Investment in an annuity is currently exempted from taxations. However, the earnings you have from the investments may be taxed according to the current slab rates.

4. Unlimited Contributions

There is no limit on the amount of money you invest in an annuity.

5. Living Benefits

You can get some additional benefits by paying an extra amount, where the returns you earn does not depend on the type of investment you choose.

Some of which include:

• You can withdraw a set percentage of the amount of your life or your spouse.
• A guarantee minimum death amount ensures that your beneficiaries will receive a fixed amount after his death.

How To Choose Among Different Annuities

1. Timing

Based on your age and the period you wish to benefit, you can choose among different annuity. If you want your Annuity benefit to start immediately, you can invest a lump sum amount in Immediate Annuity. If a person wants to collect a specific amount by investing partially and wants to start after a specific period, then you can invest in ” Deferred Annuity.” A young person far from retirement makes sense for him to invest in a Deferred annuity as he currently does not require any monthly pension.

2. Variability

Even if the amount is not guaranteed, the amount assured comes under ” fixed annuity.” If the annuity depends on the market condition and its performance in the market, it is said as “variable annuity.” A person not willing to risk more may invest in an annuity with comparatively low risk and greater returns.

3. Coverage

Annuity usually covers a complete family of one person. When invested in the joint account of annuity, the primary pay-out is given to the account owner. After the passing of the owner, his family receives the annuity. But if the second owner also dies, then the annuity payments come to rest.

If you buy a joint annuity, you have an extra advantage where your family can get money even after you die. If you can compromise on a lower income level, then the joint annuity is best for you. But if you don’t have any financially dependant person, you surely can avail of a single-life annuity.

Investment Flexibility

In a variable annuity, you can select from various options of investments available. In some of the “stepped up” variable annuity, the guaranteed death benefit may exceed the amount held in the account. You diversify your portfolio by investing in different asset classes, which may also help you gain long term profits.

Types Of Annuity

1. Fixed Annuity

Fixed annuity provide extra security to your deposits; you get fixed income, and the risk factor involved is pretty low. The rate of interest provided in a fixed annuity is relatively higher than the bank’s CD. You also have the option to defer your income or even draw it immediately.

2. Variable Annuity

In this type of annuity, we can choose from a variety of asset classes and mutual funds. The return from these investments ultimately depends upon the market conditions. If the funds you invest in perform well, your investment will grow and vice versa.

It also includes an option where the investors can choose to get a fixed return regardless of the market fluctuations.

3. Fixed Indexed Annuity

These investments offer a fixed rate of interest and change if there is a positive curve in the market. Investments are mostly done in indexes such as the S&P 500 and changed according to the investors’ wishes.

Having properties of both fixed annuity and variable annuity is often referred to as a fixed indexed annuity. Regardless of market conditions, the investments have a fixed return; the market volatility may change the rate of returns.

4. Immediate Annuity

An immediate annuity may be best for you when you have a lot of amount in your hand, which can be the case after your retirement. The premium starts immediately, and money is received at regular intervals. The investor can even have a fixed or variable rate of interest.

Why invest in an Immediate Annuity if you have such a large amount of money? First, the money invested in the immediate annuity grows tax-deferred, and the retiree has not to worry about the management of the money.

5. Deferred Annuity

It is the opposite of the immediate annuity, where two phases are present Investment and income phase.

During the investment phase, contributions are made by the investor, either lump-sum or in parts. The income phase starts after you can complete your investment phase.

Pay-outs are given only after the annuity amount has incurred interest. Any of the fixed, variable, an indexed annuity can be of deferred type.

6. Understanding Annuity

Annuities are made to be a reliable source of income for senior citizens. The fear of longevity risk of one’s assets is also reduced under the annuity.

The retirees receive social security and a streamed flow of cash, which makes annuity a preferable mode of investment.

After a long time, the cash invested in an annuity can grow steadily and amount to a large sum.

Illiquid Nature Of Annuity

The drawback we have about an annuity is its illiquid nature. Investments made in the annuity are locked up for a particular period of time, known as the surrender period. Withdrawing during this period may incur a large number of fines.

The surrender period may vary between 2 to 10 years, varying on the annuity product. The surrender penalty starts from 10% and can be more depending on the time period when the amount of withdrawal is made. 

Annuity Vs Life Insurance

The main difference between the Annuity and Life Insurance is when the benefits of the investments are given. In Life Insurance, the benefit is given after the person dies, and in the case of an annuity, the benefit is given during the person’s retirement stage.

 If the person dies prematurely, the person’s family is given money at the insurance provider’s loss. But considering the person’s long life, the insurance company provides Life Insurance at a moderate range.

In an annuity, the provider’s risk includes that the person will outlive his life and exceed the initial investments. If the insurer’s money exceeds the investments made by him, this may incur a massive loss to the providers.

How Does An Annuity Work?

Working with annuity includes transferring the risk from the investor to the owner. Like all other insurance types, the investor pays an annuity to the company to bear the risk.

A person has two options to invest in an annuity, either to invest a lump sum amount or pay periodically for a particular time until his retirement. This specific period is said as the accumulation phase. If you are younger have considerable time for retirement, then investing money in phase is best for you. But if you have a lot of cash and are about to retire, then investing a lump sum amount may give you a fair amount of money to carry their daily activities.

The period after which you stop paying and the company starts providing pay-outs is the Pay-out phase. You can also control how you will receive the payments. You can structure your payments to yearly, semi-yearly, or monthly. You can also structure your payments to get payments for a certain number of years or lifetime. You can also avail of joint annuity so that if you die early, your spouse or children (whoever is the nominee) will get the annuity payments.

To consider with social security, annuity life-income streams are based on the estimated life of the recipient. Younger your age is when you start receiving payments; more is your life expectancy, smaller is the premium amount you need to pay.

Different Types Of Annuity Work In Different Ways

1. Life Annuity

A person will keep receiving payments as long as he is alive. Payments can be made yearly, semi-yearly, or monthly. The payments stop once the person dies.

2. Joint Life Survivor Annuity:-

The annuity payments continue as long as the owner or spouse is alive.

3. Life Annuity With Return Of Purchase price:-

The person keeps receiving the payments until the time he is alive; once the person dies, the original amount used to purchase the premium is given to the descendants of the owner’s nominees. This is the best for people willing to leave a legacy behind for their family.

4. Inflation-Indexed annuity:-

Consistently, there will be an increase in the annuity premium over time. However, this annuity does not connect to the inflation rate, but the reason to do this is to cover the increment in cost in some-order

5. Annuity Payable For Guaranteed Time:-

The payment is given for a specified amount of time, let’s say 5, 10, or 15 years. The pay-outs stop only in two conditions, one if the owner dies or the second if the stipulated time is over.

Calculating Pay-outs

Calculate the amount of annuity pay-out your plan will make each month by using a simple annuity calculator. You can also find out the amount of premium you need to pay for a specific plan to run for a certain period.

Let’s take an example:- if you wish to calculate how much amount you can withdraw every month, you have to enter the specified information.

1. Do not enter the withdrawal amount; that’s what we want. If in case you want some other information, then keep the respective space blank.
2. The interval between withdrawal should be kept monthly.
3. Enter the principal amount you are paying/ have paid.
4. Enter Growth rate(in between 0 to 20%).
5. Choose the term for your plan.

Then hit on “Calculate,” The website will load you the amount you can withdraw each month using the specified premium at the given growth rate.

For checking the number of years, your annuity will last. Fill out all other information and keep the space with growth rate blank. This will give you your required information.

Eligibility Criteria

Any Indian citizen falling between the age of 35 to 75 can purchase an annuity.

Documents Required For Annuity

1. Age Proof:- Any of Birth certificate, passport, driving license, High school mark sheet
2. ID proof:- Any of Driving license, Pan card, Aadhar card, Voter ID card, passport
3. Address proof:- Any of Utility bill, ration card, Aadhar card, Voter ID card, Passport, Driving license
4. Income Proof:- Any of bank statements, salary slip, copy of ITR return
5. Proposal Form
6. Medical Report(If asked by the insurance provider)

Factors To Consider Before Applying 

There are factors you need to consider before buying any Annuity

• Time left for retirement: If you are relatively young and have many years for retirement, a deferred annuity may be your best bet. If you are about the age of retirement, then the immediate annuity can be the best choice.
• Income Source After Retirement: If you have some other source of income, annuity amounts may be reduced, which may also reduce the premium amount. You can invest large chunks of money in replacing your main source of income.
• Solvency Of Insurance Company: As the annuity is a long-term investment for about 30- 40 years, you must consider an insurance provider with good credibility and rating. You can also check the company’s financial standings; the higher the financial standing better is the company.

Who Buys Annuity?

An annuity is appropriate for the people seeking a stable and secure source of income after retirement. The investments are Illiquid and are subject to penalties in case of premature withdrawal. So it is not quite recommended for the younger generation.

Withdrawal of the annuity investment in the future to gain higher profit is not a very appropriate use of these investments. Investing only a part of your portfolio in having a fixed return and gaining a fixed income after retirement can be said as the aptest use.

An immediate annuity is often generous for people having a large sum of money and preferring to exchange it in the form of cash flow in the future.

Surrender Period

The surrender period in annuity refers to the time during which the investor cannot withdraw funds. Mostly the Surrender period ranges from 2 to 10 years.

If under emergency conditions you need to withdraw money, high penalty charges may be incurred. A longer surrender period represents better terms of the policy.

During the surrender period, the surrender fee decreases every year by a percentage defined by the bank. For example, the surrender fee during the first year is 6%, and it decreases every year, then for the second year, the surrender fee will be 5%.

Income Rider

Income rider ensures that you keep receiving the income for the remainder of your life. It is an optional benefit with a deferred annuity, which requires an annual payment fee.

Income rider also provides a growth benefit that can be used by your insurance provider to calculate your future income. Income riders mostly provide you with a percentage of your total base amount annually.

Some income rider also functions to increase your annual benefit base, regardless of your investments’ performance. For example, if you have invested 1,00,000Rs and the income rider percentage provided is 7%. If you avail income rider, your money will grow at a 7% rate growing to 1,07,000Rs after the first year.

Variable Annuity With Guaranteed Lifetime Withdrawal Benefit GLWB

In contrast to the immediate annuity, the variable annuity has control over his investment; according to his risk-taking capability, he can choose where his money should be invested.

GLWB or guaranteed Lifetime Withdrawal Benefit is a feature that can be availed at an additional cost. GLWB allows you to withdraw a certain amount from your annuity with growth potential. GLWB features help in market downfall; despite any prevailing market conditions, it allows its customers to withdraw for his complete life without annuitizing the contract.

It is recommended that you add GLWB rider in your annuity buying because it acts as an insurance to the investment portfolio held inside the variable annuity. If your investments do not perform well, you have protections and if they perform well after removing taxes and fees have a lot of potential growth.

How Can Annuity Increase Legacy?

It has been a common assumption that additional annuity in your investment portfolio decreases your legacy. But in some cases, it can increase your estate and legacy.

If you add annuity as a retirement income option, it will ensure that you will require less amount of your assets to complete your needs, therefore, the additional potential to ensure a larger legacy amount lifelong. When you buy an annuity, your investments will be purely for gaining returns and not monthly expenses. By adding annuity, liquidity, and spending capabilities and, in some cases, ‘legacy’ can be increased.

If you are worried about not living a very long life or lacking money, you can add a simple annuity with an investing amount that will give you income amounting to your expenses.

How Can Annuity Help You Reduce Portfolio Failure?

The annuity has been found as an effective tool for retirees. Adding an immediate annuity to the portfolio can help you reduce the risk of your other investments and even ensures that you never go out of annuity during the later stages of your life.

The benefits of an annuity can be understood in the long term; annuities help you reduce the potential risks of losing the money and potential upside of the investment gain.

Annuity Isn’t For everyone

Yes, you heard it right; if you are not worried about going out of income, then you might not need an Annuity.

If you have specific health problems that you might not complete your life expectancy, an annuity does not make sense. An annuity should only be an income source to reduce the load of returns on the rest of your investment and not as a source of mainstream return/earning source.

Make sure you get in contact with a financial advisor before deciding to purchase an annuity. Annuity charges you with a lot of fees and commissions, do not fall into the trap.

Common Myths About Annuity

Myths are the hypocrisies created by people, and they need to be busted

Myth 1:-

Annuity is not the way one can generate lifetime income from retirement assets

Retirement period is uncertain, probably decades, and you can indeed run out of money if not invested in the proper place. Options like annuity help you to generate a smooth flow of secure income as long as you are alive

Myth 2:-

Annuities are only for retirees

-> No, an annuity can be a part of your financial planning for as long as 35 years. A deferred annuity provides you with an option to grow your money without being taxed on the earnings. If you choose a variable annuity, you can still invest in stocks and grow money for the descendants.

Most of the annuity has a tax-deferred option, So may retirement plans come under the Internal revenue code. So when you use an annuity to fund another tax-deferred retirement plan, your plan will not provide any extra deferral.

Myth 3:-

My money won’t grow, If I invest in an annuity

-> Annuity provides a slow but steady and very secure growth. A fixed annuity provides a fixed growth to your investment regardless of the market condition. A variable annuity gives long term growth because your investment depends upon the goal, risk, and duration

Myth 4:-

Annuities are expensive, and fees aren’t worth it

-> Yes, annuities are expensive; they have additional fees, but they also have benefits and features that might help you achieve your financial goals. In variable and fixed annuity, your money grows without being taxed. Annuities can help you grow money, save taxes, pass on the legacy to your family, etc. You should consult a financial manager to help you choose the right option according to your financial goals

Myth 5:-

If I die early, the Insurance company keeps all the money.

->No, this is not the case with all the annuity. With the fixed or variable annuity, the remaining money is inherited by his family. You can also avail of this benefit by paying fees to the insurance provider. In an immediate annuity, you may opt for the benefit to guarantee income to the family.

When Is Annuity A Good Choice?

The first thing is annuity is insurance, which means we buy it to reduce risk. A variable annuity allows you to invest in stocks and bonds inside the insurance. In other types of annuity, you do not have an option to invest inside.

The annuity also provides you with security against living too long, you might combine a set of money, but it will be insufficient in the long term. Investing in an annuity gives you income till the time you are alive. So, for this reason, it is a good investment.

It is the best choice if you know your retirement goals and has analyzed the fees and penalties levied on an annuity. If you know that an annuity might help you achieve your goals most easily, an annuity can be ideal for you. You should also know how the annuity is taxed after pay-outs begin and how the annuity is better, and other investment options you have.

When Is Annuity A Bad Choice?

If a salesperson tries to sell you an annuity without looking at your financial goals, then get cautious. Many people may convince you to buy an annuity, but they do not have complete knowledge of what they are selling. And if they have not done any planning for you, you might not know how the plan will fulfill your retirement goals.

You should also be aware of the fees associated with the annuity. In variable annuity with great markets, your investment will earn lower returns.

Never buy an annuity until you are presented with a plan, and you properly understand how the plan works in. You are free to buy an annuity at any time, so do not hurry to buy one. Do your homework, consult a financial advisor, get your financial goals in a line, and then buy an annuity plan.

Some salespeople will tell you that the annuity plan is going to be discontinued. It is true because companies discontinue a plan from time to time. But do not worry because, in no time, plans with similar policies and similar features will soon pop up.

Taxation On Annuity

Annuity mostly functions to give monthly pension to the seniors (60-80 years) and super seniors(80+), and they are taxed according to their annual income as follows.

1. For an annual income up to 3 lakhs, neither senior nor super seniors are taxed.
2. For annual income from 3 to 5 lakhs, seniors have to pay 10% as taxes, and super seniors do not have to pay any taxes.
3. For more than 5 lakhs and less than 10 lakhs, a senior needs to pay 20,000Rs + 20% as taxes, and a senior above 80 years of age have to pay 20% as taxes.
4. For people having income more than 10 lakhs are taxed heavily, Seniors have to pay 1.2lakhs and 30 % as taxes, and super seniors have to pay 1 lakh + 30% in taxes.

Tax Advantages On Annuity

1. Deferred Annuity

In this type of annuity, the money you invested grows Tax-Deferred, which means that you do not have to pay taxes on the earnings your investment is making. Due to this feature, your money grows faster than usual.

In a variable annuity, going Tax-Deferred means higher returns, and in the fixed deferred annuity, the pay-outs you receive are higher.

When you start receiving payments, you do not pay tax on the original amount; the tax has to be paid on the annual pay-outs you are receiving.

2. Immediate Annuity

You do not change your investments in the deferred annuity for years or decades, but it is not the case with an immediate annuity. In an immediate annuity, you pool a large amount of money and get immediate pay-outs.

Though immediate annuity does not provide benefits similar to the deferred annuity, these investments help many investors. Firstly for the workers who have received their gratuity amount, EPF, allowances, etc. They have a large sum of money before their retirement and want an investment option to fulfill their retirement options ultimately.

An immediate annuity provides you with a safe and secure income source, though having a less yield, they can provide many long-term benefits.

Claims Process

The amount invested by the beneficiary keeps gaining interest as long as you don’t withdraw money. The process to make claims is quite different from the typical insurance policy:

• If the investor dies, the nominee needs to inform the insurance policy very soon
• Fill out the form provided by the insurance provider
• Submit the documents required
• Select the payments option, annual or monthly

Closer Alternatives Of Annuity

A closer or better alternative to annuity should have the following characteristics:-

• Higher yield
• Consistent monthly income generator for a long time
• No investment limit

We see two alternatives here, but both of them have their limitations:

1. Banks Fixed Deposit

Banks FD provides us with a higher yield than the annuity. On average, they provide about a 5.93% rate of interest per year. Investing a lump sum of 50 lakhs will give a monthly income of 32,000Rs per year.

It is a very close alternative to an annuity, but it, too, has its limitations. The bank’s FD can be held for only 10 years. After 10 years, the maturity stage is reached, and then again, you have to issue bank FD.

The second limitation is that the bank won’t allow withdrawing 32,000Rs each month. It is the yield that is produced after a TDS deduction @10%

2. Systematic Withdrawal Plans

SWP is provided by mutual funds and fulfills almost all the characteristics we mentioned above. Suppose you invest in mutual funds for a very long duration but put a condition to withdrawing a specific amount every month. SWP is capable of giving returns of more than 8% per annum.

Investments in SWP are mostly 80% debt funds and 20% equity funds, which lowers the risk o investments are even provided with higher returns. So, SWP is the closest and better (in some cases) alternative to an annuity.

Where To Buy Annuity?

Although the insurance providers have an issue to issue annuier, all the annuity is not publically.

• Insurance Providers
• From agents or brokers
• Mutual fund companies

However, If you work with these middlemen, you may have to pay a surcharge, and also they will work with the beneficiary directly. Insurance provides also gives time to time information.

5 Types OF Fees An Annuity Owner Should Know About

Various types of fees associated with a variable annuity can make it costlier for you to buy. You should be familiar with all the types of extra fees charged by the insurance provider before buying any of them.

• Mortality Expense:- This is the charge to give your family death benefit. After you die, your family keeps receiving the pay-outs. This charge usually ranges from .75 to 1.5% of your total benefit amount.
• Administrative Expense:- Many Insurance provider costs for extra money to keep on their ongoing services. These costs usually range from .1 to .3% of the policy value in a year.
• Investment Expense ratio:- In a variable annuity, there may be a cost to manage your stocks and bonds investment choices. This expense may charge you up to .25 to 2.00% of the policy value per year.
• Riders’ additional cost:- Riders give you extra benefits by charging you a percentage of annual policy value. The benefits may vary depending on the customer. This costs about.25 to 1.00%
• Surrender Charges:- These are the highest charges that may be charged from you. If you wish to withdraw a specific amount in the given surrender period, the surrender charges may be implied.

Fees Impact Your Returns

In the variable annuity, you may have the same investment options outside of those products, which means that some other company might give you the same funds and other investment options. If you pay more than 3% in the extra expenses or fees, the variable annuity you have invested should earn the amount of the complete fee before starting to earn any returns.

Salesperson Compensation

After knowing the various variable annuity types and fees, determine how much the person you are buying the annuity from will make. If he says, ” My company pays me,” get cautious because you might be dealing with the wrong person.

Many insurance companies pay commissions from 5 to 9 % of your total amount to these salespeople. If this solution was given to you after presenting a complete financial plan, this might be a good sign. If no plan was given to you and still annuity was recommended, it means that he is receiving a greater amount of commissions and wants you to but this only. Be cautious in such cases.

You should talk to a paid financial advisor. A paid financial advisor does not receive any commissions from any company. After looking upon your complete financial status and risk-taking capability, he will recommend the best option, fulfilling all your needs.

Case Study:- Swaraj’s Annuity plan

Let’s take an example; Swaraj is a 52-year-old businessman; he invests 10,00,000 Rs in a deferred fixed annuity plan. This plan provides a guaranteed return of 4% per annum. For the next 15 years, the sum will grow without being taxed. The total sum will rise to 18,00,000Rs by the time he is about to retire. This amount continues growing until the amount is exhausted.

He will receive a net amount of 1,35,000 per year. This amount is non-taxable as the annual amount is less than 3 lakhs. This annuity will last till the person dies; if the person lives for more than 17 years, so by then, he will be 85. By this time, the owner will receive about 26,50,000Rs overall.

Swaraj’s contract might also have some restrictions, fees, administrative charges, investment charges, extra cost for additional benefits, expense fees, annual account fees, etc. If he withdraws in the surrender period or before he retires, he might be charged huge penalties. Income tax penalty may also be implied in case he withdraws before the age of 59 and1/2.

Advantages Of Annuity

• Income For Life:- Annuity provides you with income that you cannot outlive, though some give income for a particular amount of time
• Tax-Deferred:- Due to tax-deferred status, you do not have to pay any taxes until you withdraw money. This gives the owner control over the overpaying of taxes. A deferred annuity may also help you reduce social security status.
• Guaranteed Rates:- In a variable annuity, the return rates depend on the market conditions. With a fixed annuity, a fixed rate of return is given irrespective of the market conditions. This is a better return due to its lower risk and good returns. Some insurance provider also provides “hypothetical Growth,” which means that your account balance will increase hypothetically, which you can take your money later from. So in case, your money balance goes below zero, you can still withdraw money.
• Limited (or No) losses: Annuities like an index- equity funds may promise that you won’t lose money irrespective of market conditions. They can guarantee you a lot of market exposure with minimal risk. This makes sense for investors wanting market exposure with less amount of risk. Please check on all the options before deciding on any one of the annuity.
• Death Benefit:- Many insurance provider providers provide a benefit to their customers if the beneficiary passes away early. Often the death benefit depends on your account value or depends upon the formula to calculate the accounts paid in versus the account paid out.

 Disadvantages Of Annuity

• Hefty Fees:- Annuity charges a lot more charges than mutual funds or CDs. When sold by agents, some more extra charges may be incurred to the buyer. An excess of more than 2% may be charged on buying the annuity.
• Liquidity:- Annuity comes with a surrender period, during which money withdrawal will charge a hefty penalty each time. Once you invest in an annuity, it might be quite hard to back-out from it.
• Higher Tax Rates:- Though no taxes are applicable when you invest in Annuity, however, when you start receiving income, they may be charged depending upon your annual pay-out.
• Complexity:- With the growing markets and increasing varieties in the annuity, it has grown complex. Some have an annual fee; some come with terms and conditions. It has got quite hard to choose an annuity to invest in.
• Offering:- Currently, only a few companies offer annuity insurance plans, so the plans are pretty limited. As the market of annuity increases, more companies will hop in, and multiple plans will be given to the common man.
• Control:- You have no control over how your fund manager will invest your money and where he will invest your money.
• Limited Choice:- Annuities restrict the choice investor has and saddle the investors with so few options.

Frequently Asked Questions

Final Talk

A steady income is all that is need for a retiree to satisfy all his needs. Investing in stocks and mutual funds does not guarantee a better income, and it has a very high-risk factor. Annuity solves this problem by giving a steady, low-risk investment.

A person gets a pay-out every month until he dies and even does not have to worry about managing a large chunk of money as it gives returns also. Overall, we can say that annuity is the best investment option for the senior and super senior citizens.