Retire with confidence. An annuity is a guaranteed pay cheque for life(for basic expenses). It is also a guaranteed play cheque for life(for entertainment as after retirement every day becomes Saturday and Sunday). The payout for a lifetime income annuity depends on how long you live, and it guarantees that you won’t outlive your monthly annuity payouts. One of the biggest worries for retirees is outliving their money. Nobody wants to be stuck in late retirement without enough income to cover basic needs. Annuity offers the best way to lock in guaranteed lifetime income. Any company can give you the interest and the principal amount but the only insurance company that manufactures the secret of the third ingredient, the longevity credit. There is a math and a science behind the guaranteed lifetime income. The annuity plans are designed by actuaries. The actuaries are those who have studied actuarial science and actuarial science is all about math and science.
Need for Retirement Planning:
- Demography of India
- Lack of Pension Scheme in India
- Shifting from a Joint Family to a Nuclear Family means there will be no family support
- Rising healthcare costs mean people will spend more on healthcare
- Long-term low-interest rates mean they will have to work longer
- Rising external debts mean there will be less support for the elderly
- Women live longer than men means most women are housewives and men marry younger than them
Demography of India :
India ageing, elderly to make up 20% of population by 2050: UNFPA report Study says challenges facing India’s ageing population are the feminisation and ‘ruralisation’ of older population, and policies must be framed accordingly; data show that women, on an average, have a higher life expectancy at the age of 60 and 80 when compared with men.
United Nations Population Fund, India’s 2023 India Ageing Report projected that the population of people aged 80+ years will grow at a rate of around 279% between 2022 and 2050 with a “predominance of widowed and highly dependent very old women”.
With the decadal growth rate of the elderly population of India currently estimated to be at 41%, and the percentage of the elderly population in the country is projected to double to over 20% of the total population by 2050, the United Nations Population Fund, India (UNFPA) in its 2023 India Ageing Report has said that by 2046 it is likely that elderly population will have surpassed the population of children (aged 0 to 15 years) in the country.
Over 40% poorest
More than 40% of the elderly in India are in the poorest wealth quintile, with about 18.7% of them living without an income, the report said, adding that such levels of poverty may affect their quality of life and healthcare utilization.
‘Inherently gendered’
“Poverty is inherently gendered in old age when older women are more likely to be widowed, living alone, with no income and with fewer assets of their own, and fully dependent on family for support,” the report said, pointing out that the major challenges facing India’s ageing population are the feminisation and ruralisation of this older population and that policies must be designed to suit their specific needs. The world’s population is living longer and growing older. Embracing and planning for this massive demographic transition is one of the greatest social challenges of the 21st century. While India has the highest number of young people, ageing is rapidly progressing. The current elderly population of 153 million (aged 60 and above) is expected to reach a staggering 347 million by 2050. This demographic shift is not merely a statistic, it’s a societal transformation of unparalleled magnitude with far-reaching implications.
Why people do not take annuity plans:
- Retirement can be seen a long way off
- Lack of financial knowledge
- do not like an annuity
- Interest rates are low
- do not want to give up my control over interest rate
- It is not liquid
- Why only insurance companies can guarantee a lifetime income
Some people think an annuity is a scam only because the fee range (surrender charges) is higher than the range for some other investment types. Investors and financial advisors might find annuity fees “troubling,
- Retirement can be seen a long way off: How long did it take to reach 30 years? Do you ever realize living up to this age? Did you ever feel it is a long way off? Probably no! When you look back on your life the time has flown away like a rocket however when you look ahead of life it seems to be a long way off.
- Lack of financial knowledge: In order to address the lack of knowledge and awareness, it is crucial to strengthen financial literacy programs in schools and colleges. Young individuals will have an understanding of financial planning if financial education is part of the academic curriculum. This step will help us address the unawareness of the younger population regarding the benefits of life insurance.
- Do not like annuity: Do you like social security? do you need money after retirement to fulfil your basic needs? National Pension System, Indira Gandhi National Old Age Pension Scheme (IGNOAPS), Atal Pension Yojana PMVVY – Pradhan Mantri Vaya Vandana Yojana. If you like your pension, if you like social security, you like annuity too. An Annuity is the guaranteed lifetime income to meet your basic expenses and hassle-free money transfer to the next generation.
- Interest rates are low: there is a massive external debt 5.25 lac crores in the total population of 141.72 crores. Demography of ageing population, longevity (medical technology advance), unemployment. All these will reduce the interest rates over a period of time.
All investments will give you principle and interest but longevity credit only one can give that is Insurance company, that is LIC OF INDIA. If people will live longer all rates will go down. You do not buy the annuity because of the interest rate and return of principal amount but you buy the annuity because you get the longevity credit. It is for the rest of your life.
5. Do not want to give up my control over interest rate: you are not giving up control but you are gaining control over risks: Risk of longevity, Inflation, Market risk, Sequence of return risk, and Withdrawal risk.
Cover your basic needs through the annuity plan. Those who think they are in control; are more likely to run out of money. It is suggested that putting all your money in an annuity but put enough money so the basic expenses can be covered till you die.
6. It is not liquid: liquidity is not a one-time event, it is a lifetime event. You increase your lifetime income, you are increasing your liquidity. You should not minimize the liquidity but most people over-estimate the liquidity and under-estimate the cost. Other than your house what is the largest cheque you have written? Do you want 1 crore liquid or 50 thousand? You always end up underestimating the cost and overestimating the need. You must understand liquidity is a lifetime event. Again you are not putting all your money in an annuity.
7. I am just getting my money back: Yes! It will go on for 100 years. The amount will be passed on from generation to generation. You get guaranteed money back as long as you live and when you die money will go to your family members. When you talk about living long, no investment will last long enough to cover your basic expenses. You are solving the biggest problem of our time. You are solving the problem of the longevity risk. The longer you live The market can crash, Interest rates will down, Inflation will rise, and You need long-term care.
Why only insurance companies can guarantee a lifetime income:
The only one way and the optimal way to retire based on the mathematical, scientific and economic facts is the annuity plans of life insurance companies. It is designed by the actuaries, the people who have studied actuarial science. The only one way and the optimal way to retire based on the mathematical, scientific and economic facts is the annuity plans of life insurance companies. It is designed by the actuaries, the people who have studied actuarial science. Math and science have proved that the only way to hedge longevity risk is annuity. Guarantees only matter when the market goes down.
Why people must have an annuity plan:
- The risk of longevity
- Inflation risk
- Market risk
- Withdrawal risk
- Order/ sequence of return risk
You solve the key retirement Risk from your life through annuity plans
- The longevity risk: Living longer is not just a risk, it is the multiplier of all other risks. The longer you live the more likely to affect the other risks. Living longer is not just a risk but it is the risk of outliving your income. The risk of living too long, otherwise known as longevity risk, refers to the potential that a person might outlive his or her savings. According to the Social Security Administration’s website: an average retiree spends 18.1 years in retirement.
A man reaching age 65 today can expect to live, on average, until age 84.0.
A woman turning age 65 today can expect to live, on average, until age 86.5.
Married couples reaching age 65 today can expect to live, on average until age 90.
However, these are just age averages, and about half the current 65 and over population is expected to live longer than this.
It’s impossible to accurately predict a person’s individual lifespan, which increases the difficulty of managing longevity risk. The unpredictability adds complexity to just about every aspect of retirement planning.
2. Inflation risk: This will decimate the purchasing power over time. If you get $ 1000 per month from your portfolio. The purchasing power at 4% inflation will become half in 20 years and 1/3 in 30 years. Inflation is really problematic for those retirees who have fixed incomes and depend on this income to help ends meet cooking gas, food and clothes have gone significantly high over the period of time.
3. Market risk: Most people near retirement remember the downturns of 2002 and 2008 and the downturns during the covid. Those were tough years in the market. If you’ve worked your whole life and then the market crashes as you get to retirement, it can have a detrimental effect on your income (see above regarding sequence of returns risk.) You’ve worked hard, and now that you are near retirement, you probably do not want to see half of your life’s savings wiped away by the downturn of the market.
4. Withdrawal risk: It is one of the biggest challenges in retirement Many people think they can withdraw 10% or 8% from their portfolio but if they do so, you will run out of money very quickly. There are several studies done to determine what the safe withdrawal risk is. Back in 1994, researcher Bill Bengen pioneered what’s now known as the 4% rule. Still widely used today, this rule shows that withdrawing roughly 4% of your retirement savings annually, adjusted for inflation, could support a 30-year retirement, based on data going back to 1926. The point is, while the 4% rule is just a guideline if you’re not mindful of your safe withdrawal rate, you risk running out of money later in life. Once retirement begins and you start living off savings, what matters most isn’t just the rate of return but the yearly amount you withdraw from your portfolio.
5. Order/ sequence of return risk: It is an order of the return a person can get from his invested amount. It is mainly applicable in retirement planning. Your withdrawal from savings or portfolio for the length of period your money will last. It depends on the average return of the financial market and the timing of the withdrawal.
The risk associated with the falling scenario. It is the risk that you run out of money if you start retirement with the market crash. With 10 bad years, you will run out of money. It is a withdrawal order in a timing of poor market return. You do not want to lose your hard-earned money. You saved, invested, earned and accumulated. Would like lose this money?
An Annuity gives you guaranteed pay cheques for life. How much money have you saved from your birth till date? You know this amount but you do not know how much you get from that money. After retirement average return does not have any meaning. The day you start taking your money from your portfolio return really means nothing anymore. This goes against everything ever you are been taught.
10% is better than 8%
8% is better than 6%
6% is better than 4%
It works only when you are investing your money. Average return does not mean anything after retirement. It is the order or the sequence of returns that matters the most.
What changes do you make in life by taking Annuity Plans:
- You live longer
- Little extra money makes you happy
- You are more confident
- No worry, no stress
- Peace of mind
- Tax-free and effortless legacy planning