One needs a regular cash flow after retirement, although the income from the job stops. Hence, it is important to derive that earning from the savings one has made during one’s working life. One way of getting such an income is buying a annuity plans from an insurance company, in this case, an immediate annuity plan. Here, you pay the insurance company a sum of money for which you get a guaranteed income stream for a desired period or your entire life. The payout may start immediately, after six months, and so on.

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In the case of life annuities, annuities continue for life. In the case of joint annuities, payments continue as long as you or your spouse is alive. In case the annuity is for a guaranteed period, it will continue till that period even if you pass away before the end of the term.

Understanding Returns 

“Returns offered on these policies are very low because the mandate is to invest only in fixed-income securities,” says Renu Maheshwari, chief executive officer, and principal advisor, Finzscholarz Wealth Manager, and a Sebi-registered investment advisor.

So, while you will get a guaranteed income every month, it will be on the lower side. Also, it will not be beating inflation.

“It is possible to do an Internal Rate of Return (IRR) calculation and get to know the returns. IRR calculations are available online,” says Suresh Sadagopan, founder and principal officer of Ladder7 Financial Advisories, a financial planning and wealth advisory firm.

Also, Sadagopan adds that it needs to be kept in mind that once the pension starts the corpus cannot be touched. Also, the annuity amount is taxable.

So, let us assume, you have bought an annuity plan with Rs 1 crore and you are supposed to receive the payout for 25 years. If the rate of returns is six per cent, you will receive around Rs 7.3 lakh per year, which is around Rs 60,000 a month.

Whether you can survive with the amount you receive every month will thus depend on your investment amount. If it is not very huge, buying an immediate annuity pension plan will not be enough to provide income in retirement.

“Those that want the comfort of a certain amount coming in every month for their lifetime should consider pension plans,” says Sadagopan. However, with increased life expectancies, you must consider investing a small portion of your retirement corpus in equities to get additional income.