Guaranteed Income Plans - Definition and Benefits

One of the critical aspects of sound financial planning is to ensure that you have sufficient funds to live a safe and comfortable life after retirement. While many people desire to be financially independent post-retirement, only a few achieve it. The difference lies in investing in a guaranteed income plan. It ensures that you have a steady income even after you hang your boots and live a stress-free life during your golden years.

As the name suggests, a guaranteed income plan is a non-participating monthly income scheme that allows you to get a steady income for a specific number of years after you retire or after the policy matures. The number of years for which you receive the income depends on the insurance cover, the premium paid, and the sum assured upon policy maturity.

Many investors tend to rely heavily on stocks, mutual funds , and other investment schemes to build a sizeable corpus for the future. However, you must know that such investments have a risk value, and the returns greatly depend on the market performance.So, if you don’t want to take any risk and want to stay away from the market uncertainties, it is better to invest in a guaranteed income plan. Thus, it is the best investment avenue for low-risk investors. Such plans not only give you a fixed income post-retirement but also double up as an insurance plan. If something happens to you, your family gets a lumpsum payment.

• Financial stability Even though you may look forward to your retirement so that you can finally get rid of the work responsibilities and spend time with your loved ones, the idea of not having enough funds to sustain through the post-retirement years can be challenging to deal with. While you may rely on your children for financial support, having a regular income source of your own can be both rewarding and liberating. With a stable income post-retirement, you can continue living on your own terms and even support your family in times of crisis.Investment in guaranteed income plans ensures that you get a regular income in your account. This allows you to take care of your own medical and other expenses without burdening your family. Considering there is a high risk of medical contingency during old age, a guaranteed income gives you peace of mind knowing that you have sufficient financial backup to care for your needs.
• Low-risk investment As you near your retirement age, you may be reluctant to invest in a high-risk scheme, and you may like to invest in schemes that are risk-averse. Guaranteed income plans are such low-risk investments that ensure that your family continues to get a regular income in the event of your unfortunate demise.A guaranteed income plan assures financial safety for you and your family as they will never face the issues of income loss. Also, such plans are not linked to market performance. This means the market volatility does not impact the income you get; your family will continue to get a steady income regularly.
• Secures your retirement The savings-investment scheme with guaranteed income gives you the flexibility to continue saving throughout your career. Also, since these income plans allow you to enjoy tax benefits, savings become much more manageable.Guaranteed income plans also give you the option to withdraw the funds in a lump sum amount partially. This is highly beneficial when you need funds immediately, like a medical emergency in the family or paying your child’s education fees.
• Portfolio diversification In the investment market, don’t put all your eggs in one basket is a famous adage. It simply means don’t invest all your money in a single fund or asset class. So, if you have already invested in different schemes, a guaranteed income plan will add much-needed safety to your portfolio.It gives you the assurance that you will continue to get a fixed income even if your other investments don’t go as planned. It is vital to have different investments with different risk levels so that you can take maximum advantage of the investments available to you.
• Makes retirement budgeting easy When you precisely know the income you will get post-retirement, you can easily plan out your budget. You can accordingly plan your other investments and expenses without worrying about the regular expenses incurred by your family.

Investments in a guaranteed income plan is a great way to secure your financial future. It ensures that you live comfortably during the second innings of your life without facing any financial struggles. Also, adding a guaranteed income plan in your portfolio gives you a low-risk diversification and safety in the event of any emergencies like hospitalisation that are likely to occur in your old age.

The information contained herein is generic in nature and is meant for educational purposes only. Nothing here is to be construed as an investment or financial or taxation advice nor to be considered as an invitation or solicitation or advertisement for any financial product. Readers are advised to exercise discretion and should seek independent professional advice prior to making any investment decision in relation to any financial product. Aditya Birla Capital Group is not liable for any decision arising out of the use of this information.