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What is Retirement Annuity: Working Principle, Types and Tax Benefits

What Is Retirement Annuity?

How Does a Retirement Annuity Plan Work?

Fixed Vs Variable Retirement Annuities

Given below is a table showing differences between a fixed and variable retirement annuity:

Fixed Retirement Annuities

Variable Retirement Annuities

In this annuity type, policyholders receive fixed payments throughout the tenure.

Policyholders can obtain variable pay-outs by choosing this annuity plan.

Generally, resources are put into fixed pay instruments.

This allows you to invest in a number of instruments.

It generates stable and consistent returns due to investment in fixed instruments.

It pays you a certain income amount depending on the performance of the selected investments.

There is little scope of development for the chief amount invested.

As the chief amount is invested across markets, it may increase in times of bullish market trends.

No risk associated with this type of annuity plan.

As this annuity plan is market-linked, there are some risks of investing in this type of plan.

Immediate Vs Deferred Retirement Annuities

To know the differences between immediate and deferred retirement annuities, you can consider following the table given below:

Immediate Retirement Annuities

Deferred Retirement Annuities

In this type of annuity, policyholders can start receiving benefits right from the beginning of the investment.

This annuity type offers regular income after the completion of the accumulation phase.

There is no accumulation phase in this plan.

A deferred annuity's accumulation phase starts from the day of investment. One can start accumulating funds and build a retirement corpus.

To apply for an immediate annuity plan, individuals need to make lump-sum investments.

In this annuity type, one can pay premiums in instalments.

It is ideal for retired personnel who are in urgent need of funds.

Individuals who can start building a retirement corpus from an early stage can find this annuity plan helpful.

Apart from this, while choosing annuity plans in India, you might want to consider factors like retirement annuity rates, tax benefits, etc.

Tax Benefits of Retirement Annuity

Frequently Asked Questions