What is an annuity?
An annuity is a solution for post-retirement income. How it works is simple. You invest a fixed initial amount and in return you get a lifetime of assured income.
When you buy an annuity, you get
- an assured income
- lifelong income (pension)
- no risk income
- no hassle income
- no bother about investment options, advisors, rebalancing, etc.
Take an example.
You are 60 and you need an assured Rs. 50,000 per month to meet your post retirement expenses. If you want an assured income of Rs. 6 lakhs a year, then you simply buy an annuity for approx. Rs. 75 lakhs, as a one-time payment. (Estimates based on an immediate annuity plan of a private insurer)
You don’t have to bother at all. No money management hassles, no investment selection, no dealing with bankers or advisors and collecting cheques from various investments.
The annuity provider will transfer the amount to you every month/year as per the frequency you choose.
An annuity ensures that you earn an income for the rest of your life.
But is it all that good? Not really.