The mere thought of running out of money during retirement seems scary. So looking out for the income sources that keep us going during the retired phase gets crucial. One such investment product that turns your invested money into a regular source of income is an annuity. Here are major factors to consider before buying a long-term annuity product.
Returns & Restrictions: Earlier, immediate annuity products used to offer comparatively lower returns. Now, the returns being offered by the annuity products are comparable with that of others. Additionally, an annuity offers guaranteed rates for life, whereas most products in the market come with the restriction on the tenure or maximum deposits.
Safety & Age: Older investors look for assured-return products like annuities. Debt mutual funds can also generate similar returns but accompany risks. Thus, annuities may be beneficial as retirement income. Coming to the age, the rates move up with age for the return of premium annuities. Thus, the decision to lock in should be taken based on the available rates and age. Younger investors should also consider the issue of taxability.
Diversification & Taxation: Never put all the eggs in one basket. Guaranteed annuity for life may be a positive feature but do not invest everything in it. Diversification is important to rule out deviations in the interest rate. Lock no more than 50% of your retirement corpus in annuities and the rest 50% in other instruments. As the annuity amount is treated as pension, marginal taxes are levied on them. And the annuity includes a part of the principal, so even that is taxable.
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