What Are Annuities & How Do They Work?

Annuities mean a fixed sum of money paid every year or ‘pension’ in even simpler words. A lump sum amount is given to you every year, for a certain time or for rest of your life. Annuities are popular among people who work in corporates or have their own businesses, as these people don’t get any pension, unlike public sector employees, who opt for annuities as a second income source post retirement.

Do I need an annuity for myself?

Annuities help you on a daily basis once they retire. By investing in an annuity, you set up a process to receive money in the future. You must plan for pension/annuities if you are worried that someday you might outlive your income.

Are you worried about outliving your income? That’s a risk that you may be able to do something about.

When you invest in an annuity, it is a long-term contract you purchase from an insurance company. It is designed to help accumulate assets to provide income for retirement.

Get more clarity by following this plan of action:

1. Ask yourself: Do you want to have a fixed income source 30 years from now? There are chances you want to get retire by the age of 60. Let’s assume your present day-age 30. Now you have to decide whether or not you want to have fixed income when you are 60 years old.


2. You must note down all the problems you might face and you think money can solve them. In the list of such items, a loan repayment, growth, legacy or health care. Anything can come.


3. Determine an amount that you think will be enough to solve such problems. While calculating such amount, do remember it is 30+ years from now and everything will be more expensive than today.


4. Look at all the options you have that can solve such problems you might have in the future. Also look at the annuity options that can solve such needs that can arise in the future.


5. Purchase the best plan according to you. Allocate the resources as per your understanding or take the help of the customer support.


6. Once you purchase an annuity, monitor it and make changes when important.