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Hedging Your Bets: Retirement Annuity 

August 22, 2023
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‘Retirement Annuity’ can save your retirement plans from disaster.

In the first part of this series we discussed ‘Retirement planning‘. It is the concept of properly preparing for your retirement to avoid ‘harrowing pitfalls’ when you eventually retire. Keeping that last discussion in mind, picture this story:

Your Pension Is At Risk

Tayo, an astute man who worked almost every day of his life ever since he was a child. He pulled himself up by his bootstraps, focused hard in school, got the best grades he could. Once he finished school he started working in a growing small company. Thanks to his dedication, the company flourished and after many years of hard work, he could retire at age 60. He had been looking forward to retirement after working for so long. Rest! Real rest, where he could do what he wanted and finally stop working. He had done the right thing, he planned and saved so he could finance his comfortable retirement .

And then he 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 thus 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, or just 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: 

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. 

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. 

This is why, you should entrust the risk, and your future, with Coronation Insurance. Coronation Insurance has a track record of keeping its promises and paying out claims in record time. Similarly, Coronation Insurance has honed its competencies over the years with heritage spanning as far back as the 1950s and it continues to provide optimal service till today. In addition to that, it has earned the trust and has the privilege of working with many of the most prestigious clients across Nigeria and beyond the shores of the country. 

So, if you wish to trust anyone with funding your best life during retirement, it should be Coronation, your Prosperity Partner. To get started with Coronation Insurance’s retirement products, click here to get a quote. 

Truth be told this is a complex topic to understand, but it is important none the less. If you have any questions or want me to elaborate further, please don’t hesitate to send me a message by commenting below.

Read Also: What is Retirement Planning?

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