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, ET Online|
Jul 20, 2026, 10:07:51 AM IST
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Worried about running out of money in retirement? An annuity pays you for lifAn annuity is a contract with an insurance company. You pay a lump sum, or a series of instalments, and in return, the insurer sends you regular guaranteed payments for a fixed period or for the rest of your life. Think of it as buying yourself a personal pension.
*Guaranteed income
*Not market-linked
*Lifelong or fixed term
*Offered by life insurers
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An annuity has two phases. You save first, Then you get paidThe mechanics are straightforward. First you put money in. Then the insurer pays you back, regularly and reliably.
Phase 1: Accumulation
You pay in lump sum or instalments
Your money sits invested and compounds over time until payouts begin
Phase 2: Distribution
The insurer pays you, monthly, quarterly or yearly
Immediate annuities start right away. Deferred annuities begin after a waiting period you choose
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Four types of annuities exist. Here's which one matches your retirement goalImmediate annuity
Payouts start right after your lump sum payment
Best for those already retired and needing income now
Deferred annuity
You save over time, payouts begin later
Best for those still working and planning ahead for retirement
Fixed annuity
Guaranteed payout, unaffected by markets
Best for conservative investors who want zero risk
Variable annuity
Payouts depend on market-linked fund performance
Best for those comfortable with some risk in exchange for higher potential returns
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You can choose exactly how your annuity pays out. Here are your 5 main optionsLife annuity
Pays you for as long as you live; no end date
Life annuity with return of purchase
Regular income for life, original sum returned to nominee on death
Fixed term annuity
Pays for a set period: 10, 15, 20 or 30 years
Inflation-indexed annuity
Payouts rise over time in line with inflation
Joint life annuity
Covers you and your spouse; income continues until both have passed
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5 reasons annuity might be the most underrated retirement tool in IndiaGuaranteed income
Payouts are fixed at purchase; no surprises, ever
Zero market risk
Fixed annuities are completely unaffected by market swings
Tax savings
Eligible for deductions under the Income Tax Act, 2025
Flexible payouts
Choose monthly, quarterly, half-yearly or annual payments
Spouse protection
Joint life options ensure your partner is covered too
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Annuities aren't just for retirees. Here's who should seriously consider oneRetirees
Steady income, financial independence
No more worrying about monthly expenses
Senior citizens
Simplified money management
Live comfortably without depending on family
Entrepreneurs
No employer pension? Build your own
Create a reliable retirement income stream
Conservative investors
Zero risk, stable returns
Capital protected, no market exposure
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Before you buy an annuity, know these 3 things that most people missThe surrender period
You cannot withdraw money for 6–8 years after buying
Early withdrawal attracts a penalty. Only commit money you won't need in a hurry
Payouts are taxable
Annuity income is added to your total income and taxed at your slab rate
Factor this into your retirement income planning
For super senior citizens there is a basic exemption limit of ₹ 5 lakh. Annuity income is only subject to tax if your total annual income exceeds this amount.
Start as early as possible
Earlier entry means lower premiums and better long-term value
Even small regular investments in early earning years can build a sizeable retirement income
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