Retirement planning (Annuity Plan)

Q & A Forum › Category: Insurance › Retirement planning (Annuity Plan)

cnudav asked 9 years ago

Hi Sreekanth, Few years back, I have enrolled into the Birla Sunlife Freedom 58 unit linked retirement plan. I know it was not a wise decision, but I have accumulated some money in it. Have reserved this fund exclusively for my retirement monthly expenses. I have been hearing that going for annuity option in these plans is not a good decision. I am confused if I should continue this policy or exit and invest the proceedings some where else which give better returns. Have been thinking of few options now:

Continue this policy for some more time, say 5 years and then go for the annuity (what would be the typical annuity rates are and how much will we get per month for each lakh in the kitty). I am 45 now and can continue this for at least 5 more years, if not more.
Surrender this policy and invest the amount somewhere else. What would be a good alternative to get a regular monthly income after say 5 years from now. ?
Continue this policy for 5 more years and surrender then. What would be good option to start getting regular income from that point onwards ?

If I surrender the policy now, I understand that the surrender proceeds will be taxable (in the 30% bracket). There are no surrender charges as the policy has been in force for more than 5 years now. Thanks Srinivas

2 Answers

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Sreekanth Staff answered 9 years ago

Dear Srinivas, Have you ear-marked any other investments for your Retirement goal? Suggest you to kindly calculate approx figures w.r.t. retirement, go through this article @ Retirement goal planning & calculator. Kindly note that the current Annuity rates in India are very low at around 4 to 7% only. Considering the inflation rate and standard of living in India, your real rate of return would be very low. Also, annuity amounts are taxable. Kindly read my article on : HDFC Click2Retire online ULIP plan Review. Surrendering a Pension plan before maturity has serious tax implications. As rightly pointed out by you, the surrender value is added to your income and taxable as per your slab rate. Also, the tax deductions you would have claimed in previous years will be reversed and taxed. And 2/3rd of the surrender value received should be used to purchase annuity plan.

cnudav replied 9 years ago

Hi Sreekanth, I have been contributing to VPF every month and looking at this PF kitty as the source for the retirement in addition to the above pension policy. So, you feel that staying with this policy and going the annuity route (with 2/3rd of the amount) is the best thing to do ?

Thanks
Srinivas

cnudav replied 9 years ago

Thanks
Srinivas

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Sreekanth Staff answered 9 years ago

Hi, Yes, that would be a better option .. if possible do consider doing SIP in an equity oriented balanced fund for the next 5 years or so. Kindly read: Best Balanced funds.