Do you remember your first money box?
In the past, money boxes were usually in the shape of animals made of ceramic and had to be smashed in order to retrieve your savings. These days, money boxes are more likely to be made of plastic.
Whatever your money box was like, the first people to contribute to your savings were likely your parents. But different parents had different systems when it came to doling out allowances: you either received a fix amount of money on a daily basis, or you received a lump sum at the beginning of each week or, if you were lucky, each month.
Similarly, that is how retirement payouts work.
Ask any distribution representative and he will tell you that how you receive your retirement payout differs from policy to policy. To help you sort through the differences, here is a description of three different possible payouts:
1. Monthly Income for Life
If, as a child, you received a fixed amount of allowance each day over a period of time, then annuity plans will sound familiar to you. With a one-time investment after you turn 55, an annuity plan provides you with a regular income on a monthly basis, making sure that you can maintain your current standard of living. This can be achieved with an early regular savings plan with a drawdown benefit when you reach 55, 60 or 65 years old. You can opt to have your lifelong payouts start immediately upon premium payment, or have them deferred to a retirement age of your choice: 60 or 62 years old. There are even plans that allow you to choose your payout age, period, premium term and accumulation option.
2. Lump-Sum Payment
As the name suggests, you will receive all of the funds you are entitled to in a single payment. Just imagine your parents giving you all the pocket money you are entitled to in a lifetime to buy school lunch. This may sound like a good thing, at least to a school kid, but it’s a different story for retirees. Keep in mind that receiving a lump sum payout means that you will have to draw up your own plan on how long your money can last and you may be also giving up on future benefit payments, such as survival benefits or cash bonuses.
3. Level Income during Retirement Years
To kick-start your retirement in comfort, you can consider getting a monthly retirement payout that can supplement your desired retirement income. Moreover, this monthly income can also be increased accordingly every few years in order to stay ahead of inflation. And unlike other payout options, this type of annuity can help support your monthly income for up to selected number of years after retirement.
As you can see, planning for retirement early has a myriad benefits. Carefully consider your current financial situation, needs and goals before deciding on how best you should be retiring. If you have any concerns, speak to your distribution representative to determine the best retirement option you should be planning towards.