scorecardresearchRetirement planning: 6 factors to consider when choosing an annuity plan

Retirement planning: 6 factors to consider when choosing an annuity plan

Updated: 17 Mar 2023, 08:51 AM IST

Your age, immediate or deferred plan, safety, coverage and liquidity are the five important factors to consider when selecting an annuity plan for your needs.

When choosing an annuity plan, consider age, type of annuity, safety, returns and liquidity.

When choosing an annuity plan, consider age, type of annuity, safety, returns and liquidity.

Are you looking to buy an annuity plan for your post-retirement financial needs? If yes, then there is a higher probability that you might be having a rough time shortlisting the annuity plan that will be best for you. Don’t worry. In this article, we will look at the different factors you might consider to select the annuity plan that works for you.

Your age

Annuity plans can be segregated into two types if we divide them based on when the payout starts. The first type is the immediate annuity plan, where the payout starts almost immediately after the payment of the lump sum amount. 

On the other hand, in the case of a deferred plan, the person has a few years left to retire, and so they will keep accumulating till they reach their retirement age. And once they reach that age, the life insurance company will pay the annuities on a regular basis.

READ MORE: Is an annuity a good investment option? Here are its pros and cons

Choosing the right annuity option for you

The second thing that you need to consider is the type of annuity plan. We have seen in the previous articles on annuities that there are two main types of annuities when it comes to payout. One is the variable payout, and the other is the fixed payout. Both of these options have their own set of advantages and disadvantages.

Before selecting the annuity plan, you need to figure out if you want a fixed amount or if you are okay with a variable annuity plan where the monthly payout might fluctuate depending on the market scenario. Most variable annuity plans will have a minimum amount as a payout that will be paid to you irrespective of the market scenario.


Safety is another important feature that deserves attention. It is because life insurance will pay you income after your retirement. Hence, selecting an annuity from a reputed and well-established life insurance company is vital.

READ MORE: Consider annuity plans to ensure a steady income for you after retirement

Check the guaranteed returns

Most retirees buy annuity plans as they provide a guaranteed pension regularly. While getting a guaranteed pension might be good enough for many people, why settle for less when you can get more? Look for plans that offer a higher payout and increase the payout to keep up with the raising inflation.

Optimum coverage

In addition to providing income after retirement, some annuity plans also offer the same benefits to your spouse after your demise. You may want to look at plans that transfer the benefits to the spouse if you have one.

If you select the annuity option ‘Annuity payable for life with 100% Annuity payable to spouse on the death of annuitant’, your spouse will receive the entire annuity after your death. As a result, you can be assured that your spouse doesn’t have to worry about income.

Also, if you choose an annuity for life with a return of purchase price on death, the nominee will receive the purchase price on your death.

There is another plan that combines both benefits. In the plan ‘Annuity payable for life with 100% Annuity payable to spouse on death of annuitant with return on purchase of Annuity’, your spouse will receive 100% of the annuity after your death. In addition, your spouse will get the amount at which you bought the policy.

READ MORE: What are the different types of annuity plans? MintGenie explains

Easy liquidity

The principal amount you paid to buy the annuity plan is locked. It is because the annuity income is generated based on the initial investment. So, most annuity plans don’t offer the facility to redeem your initial investments. But we don’t know when we will need money, and it is better to have money at arm’s length that we can use whenever required. So, you can look at annuity plans that offer the facility to redeem a part of your invested corpus at the time of emergency.

Here we have seen the five essential factors you must consider when choosing an annuity. It is always better to talk to your financial advisor, who will be able to select the annuity plan that will work best for you.

Padmaja Choudhury is a freelance financial content writer. With around six years of total experience, mutual funds and personal finance are her focus areas.

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First Published: 17 Mar 2023, 08:51 AM IST