Pros and Cons of Annuities – Evaluate Annuities for Your Retirement

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.

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