Finance

Immediate Vs. Deferred Annuity Plans – What’s Right for You?

After working for most of your adult life, retirement is the time to kick back and enjoy yourself with your loved ones. That’s the ideal plan, right? Many of you will have a handsome portfolio to pull that off, while others will have to plan and get there.

One of the smartest ways to plan a financially secure retirement is to invest in a good annuity plan. Now you can reap the benefits of your investment in one of the following two ways – immediate or deferred annuities. Both have their fair share of pros and cons, and it’s best to do your homework before you choose one. 

Let’s take a look at the mechanism of annuity plans and how it works. You can invest a lump sum or pay regular premiums based on the final amount you want to get at the time of retirement. When you are ready to retire, you can choose to receive the payout in a lump sum or monthly.

Which plan suits you the best?

When it’s time to collect the payout, both are viable options. Read on to understand which option would benefit you the most – 

  • Immediate Payout Plans

The advantage of this payout method is that you receive the entire fund at once when you retire. A lump sum can help you get a few critical things done for yourself or the family. You can also (most definitely should) reinvest a major part of the fund to create a cash flow for longer and get some profits out of it.

But there is a potential downside as well. If you are not good at controlling your spending, you may end up with a lavish few months at the start of your retirement and then run into a difficult situation.

And if you suddenly feel like investing big without adequate knowledge and experience, it would be more of a gamble, potentially wiping off a part of your portfolio.

  • Deferred Payout Plans

A major advantage of the deferred annuity plans is that you are sure that you’ll receive a certain sum of money every month – just like a salary. On top of the annuity payout, if you have a decent fund, you can actually cover the recurring costs or the basic needs like rent, food, medicines, etc.

But without major liquidity in hand, you would not be able to take care of any major expenses.

Final Thoughts

To sum it up, understand your needs and plan a diversified portfolio that consists of an annuity plan as one of the components. There’s no one-fits-all model, so consulting an expert is the safest way to proceed.

 

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