When you work, the goal is to grow wealth. After you retire, the focus shifts to a reliable income that covers living costs for many years.
An annuity is a contract that turns a lump‑sum into regular payments for life or a fixed period. It promises a steady stream of money in return for your investment.
In India, people who leave the National Pension System (NPS) must use part of their NPS balance to buy an annuity. This rule is mandatory, but it does not apply to all retirees.
For those who fear outliving their savings or want predictable cash flow, an annuity can bring peace of mind. It works regardless of market ups or downs.
However, annuity money is usually locked in. You cannot withdraw it easily if you face an emergency, such as a hospital bill or a sudden family need.
A fixed monthly amount can lose buying power as prices rise. Inflation erodes the real value of a steady payment, especially for health, food, and household expenses.
Retirees can avoid over‑reliance on a single product by mixing sources. EPF, NPS withdrawals, Senior Citizens' Savings Scheme, bank deposits, mutual funds, or rental income can supplement an annuity.
Many annuity plans offer extra benefits. Some continue payments to a spouse after the holder dies, while others return the purchase price to nominees, affecting family security.
Before deciding how much to invest, calculate the guaranteed income needed for essential expenses—food, medicine, electricity, insurance. The remaining savings can then be invested more flexibly.
An annuity is a useful tool, but it should be part of a broader plan. Assess your costs, existing income, and long‑term needs to choose the right mix of products.