Retirement Annuity’ can save your retirement plans from disaster.

Mrs Sandra is a career woman who worked almost every day of her life. She focused hard in school, got the best grades she could. Once she finished school she started working in a growing company. Thanks to her dedication, the company flourished and after many years of hard work, she retired at age 60. She made retirement plans during her career days and had been looking forward to retirement after working for so long.

Rest! Real rest, where she could do what he wanted and finally stop working. She had done everything right, she planned and saved so she could finance her comfortable retirement .

And then she lost that pension in the blink of an eye. Depressing I know, but more likely than you would think. Thankfully, this piece is going to educate you on how to avoid this fate.

It’s common knowledge that Nigeria’s economy is unstable. Because of inflation our currency loses value almost everyday and everything is becoming more expensive as time goes on. It is difficult to find economic stability in such a chaotic environment. Usually income from your job would be manageable enough to provide at least some financial confidence.

When you are retired and no longer working, you don’t have that. Pensions are the only thing most retired people have. Some who made smart investments will have the returns to supplement their pension, but that’s all they are, supplements. For most, if not all Nigerians, their pension (and their income) is at risk. Inflation could unexpectedly erode its value, wasting the years you would have saved towards the pension. Therefore, retirement annuity is a better option; it eliminates that risk.

What is Retirement Annuity?

Retirement annuity, is a retirement product typically offered by insurance companies. In exchange for a fee, an insurance company will give you regular payments for either a set amount of time, or for the rest of your natural life. The insurance company guarantees this money. So no matter what, you will be receiving this money. Even if inflation becomes an issue, insurance companies would plan for this by increasing how much money you receive over time. That is how retirement annuity eliminates the risk regarding your income during retirement. It transfers the risk to the insurance companies.

Retirement Annuity Options

Retirement annuity can only be received once you have retired after a certain age, which is 60 years or 35 years of unbroken active service, at least, in Nigeria. After this point, you would be guaranteed a regular income that would allow you to live comfortably in your retirement. But to figure out how much you would need to live comfortably, insurance companies would calculate a quote for your income based on how much you pay for the annuity. There are two options to it:

1. Immediate Annuity.

With immediate annuity, you pay for the retirement annuity with an up-front lump sum. Typically this is from at least 50% of your pension after you have retired. After the payment has been made, you would receive your money almost immediately, and from then on for the rest of your life at a regular rate.

2. Deferred Annuity.

On the other side of the coin, deferred annuity is when you buy annuity with a plan to start receiving the money at a specific date. Rather than paying up front with your pension, this option gives you an “accumulation phase”, where you build your savings and investments until the set date. This allows you to purchase annuity without touching your pension savings.

Benefits of Retirement Annuity and Trust

Annuities can provide benefits like tax deferral, which means taxes on your earnings will only be payable upon withdrawal. This speeds up the growth of investments made with annuities when compared to pensions, as it does not immediately deduct taxes. Plus, annuities offer a guaranteed income. As a result, they are better than solely depending on your pension. But in Nigeria, there is still the factor of trust. As previously mentioned, the Nigerian economy is almost always economically unstable thanks to political unrests, the price of petrol, etc. While you would be transferring the risk from you to your chosen insurance company, you don’t want a situation where the company’s annuity payment defaults due to incompetency or lack of integrity. So it’s important to choose a trusted insurance company.