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Pros and Cons of Annuities – Evaluate Annuities for Your Retirement

April 08, 2019
After retirement, every person looks forward towards a stable income, in the absence of a monthly fixed salary. There are a lot of factors that decide what the ideal coverage for retirement should be.The coverage amount has to include the various additional costs that may be there in addition to the usual expenses like the house hold expenditure and day to day expenses. Post-retirement, when the health conditions may become fragile and the medical bills may pile up, there is an increased dependence on the savings corpus that has been built over the years. Needless to say that if this corpus has been exhausted due to certain financial goals or due to expenses on childrens events like marriage etc., then the burden that is put on the financial reserves is immense. Therefore, it is very essential for a person to have a proper retirement plan in place so that financial security for the golden years can be ensured.

When it comes to purchasing annuity plans, there are certain things that must be considered carefully. After all, not everyone thinks of annuities as a requisite support for the retirement period. This is because, like any other insurance product, annuities have their own pros and cons and these must be considered before deciding to invest in one. Following is a comparative analysis of the various pros and cons of annuity instruments that can help you take an informed decision:

  1. Safeguard against inflation: Annuity instruments are developed keeping in mind the various factors like inflation. Inflation or the general increase in prices over a period of time is a reality of our times and if not taken into consideration, it can seriously impact the available financial reserves after retirement. An annuity plan acts as a hedge against inflation by countering the corresponding rise in prices with the sum assured that is accumulated in the due course of time.
  2. Financial inflow for a lifetime: Most annuity instruments serve as a lifelong warranty of a regular income. The option to have a regular payout in the form of a pension ensures that your finances do not suffer in the absence of a monthly income. This is one of the primary advantages of an annuity instrument.
  3. Tax-saving: Most annuity instruments offer tax benefits under the relevant Sections 80C and10D of the Income Tax Act and hence, this adds to the overall corpus while ensuring that there are guaranteed payouts.
  4. Annuity plans are rather inflexible: Since the prime focus of an annuity plan is on the retirement fund management, the features like premature or partial withdrawals are not existent or come with strict rules and regulations. This makes the annuity plans very inflexible. In case of immediate requirement of emergency funds, a person cannot rely on the accumulated annuity corpus.
  5. Limited rate of return on investment: Unlike many market-linked instruments, annuity payouts are rather limited and restricted in nature. There are fixed pay-outs, which may not be as high as that offered by investments in market-linked high-risk investments.

HDFC Life offers HDFC Life Click 2 Retire- a unit-linked pension scheme that has been formulated to help you achieve your retirement goals in a beneficial manner. For details, click on the mentioned link: https://www.hdfclife.com/retirement-and-pension-plans/click-2-retire.

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Francis Rodrigues Francis Rodrigues

Francis Rodrigues has a decade long experience in the insurance sector, and as SVP, E-Commerce and Digital Marketing, HDFC Life, manages the online sales channel, as well as digital and performance marketing. He has had hands-on experience in setting up sales channels and functional teams from scratch over a career spanning 2 decades.

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Vishal Subharwal Vishal Subharwal

Vishal Subharwal heads the Strategy, Marketing, E-Commerce, Digital Business & Sustainability initiatives at HDFC Life. He is responsible for crafting and ensuring successful implementation of the overall organisation strategy.

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We at HDFC Life are committed to offer innovative products and services that enable individuals live a ‘Life of Pride’. For over two decades we have been providing life insurance plans - protection, pension, savings, investment, annuity and health.