Thursday July 19, 02:03 AM
Deferred annuity |
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Most people look at returns that are going to be generated by their investments in percentage terms to determine whether they will be adequate or not. One of the most important point that is to be considered is the time period for which the return will be available. This is often ignored and that can be a problem because in many cases the return abruptly stops.
It is in such a backdrop that the concept of annuity and more importantly the concept of deferred annuity that has to be considered. Once having understood this concept, it can then be used for application in several areas.
Deferred annuity
Deferred annuity is a variant of the concept of annuity. An annuity is nothing but a regular payment that is received by a person usually after retirement. A person can get an annuity by investing a specific sum of money that will then keep earning returns and generate the required amount at regular intervals.
Taking this concept further is the term deferred annuity where the regular payment starts after a specific time period and this is usually after a certain number of years from the time the investment is made. This means that under deferred annuity the investment may be made today when an individual is say 50-years-old and the pay-out could come after 10 years or it could come after retirement and so on. There is always a time gap between the investment and the returns flowing in, which means that the returns are not immediate.
Best use of deferred annuity
Earlier investment: The earlier the investment is made as compared with when the pay-out is to be received, better will be the amount that will be received as deferred annuity. This is on account of the fact that the longer time period in the intervening period will be utilised to ensure the corpus growth and the pay-out will come from this.
Larger investment: The larger the investment, the better it is for the investor because of the fact that this will enable them to earn a higher pay-out. Also, this is a good way of ensuring that the amount lasts for a longer period of time so that the aim of the investment to last during the time of requirement is fulfilled.
Earnings rate: The most important point in the entire deferred annuity process is the earning that the investment is generating. A slight jump in the earnings rate can make a difference in terms of the pay-out. This can help the amount last for a longer time frame than what would be the normal case.
Real life usage
Deferred annuity is actually used in real life for several areas. One situation is when there is a need to get a regular pay-out at the time of retirement. Then providing for such a situation by buying a deferred annuity plan would be a good option. Recently, there were reports about a plan to try and use this concept in the case of reverse mortgage where the senior citizen would be able to use this route in order to get some regular payment in case they survive beyond the term of the reverse mortgage.
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