Retirement is a day which every individual will have to face in life. Those who are in employment will have to retire after attaining particular age as mentioned in the service rules. For these persons retirement is mandatory. Even those who are in business have to retire. They cannot continue in business for life and one day or the other they will have to hang up the business because of old age. Life after retirement is something difficult to imagine. Now the person will not have any regular income. He has to meet the daily expenses of the family, his medical expenses, car insurance, the list goes on. Those who have pension benefits are a lucky lot because they have something to hang on in the old age. Those who do not have pension benefits have to plan their retirement well in advance.
What is Annuity?
It is a fixed income a person gets over a period of time. The annuity is normally investment based. There are many types of annuity depending on the type of investment. For retired persons, the most preferred Annuity Plan is the Life Insurance Annuity plan. This annuity continues for life and therefore the person will enjoy the benefit of fixed income for life.
How Annuity is paid?
The entity, be it the employee or the business, invests a particular amount periodically with an investor. The investor in turn reinvests the amount in safe securities, debentures, etc. This results in accumulation of amount by way of dividend, interest, etc. Thus, the amount invested by the investor starts to earn and grow. The amount so accumulated is used to pay the retired person by way of Annuity. Of course here, the wisdom of the investor in investing the amount is the key factor. Normally, retirement annuities have sufficient backing from the government and they are subject to strict laws and scrutiny by the governmental agencies. This is to ensure that the investment of the individual is not misused by the investor.
Advantages of Annuity:
Apart from the fixed income, the amount received as annuity is not taxable. This is one of the greatest reliefs a retired person has. On the contrary interests earned on the amounts invested in Certificates of Deposits (CD) are liable to be taxed.
