Let us look at a retiree in the US or Europe who has bought an annuity for life at his age of 60 years. He will get an annuity today paying Gilt rate MINUS costs. The Indian annuities are priced at about 7% – so there is a good chance that the annuity in the US will be priced at 1-1.5%.

The inflation in the US is about 4-5% even though the Fed refuses to put the inflation at such a level. If you see international prices of oil and gold vis-a-vis the dollar, it is safe to assume that the inflation in the US is hurting.

So what happens to people who buy an annuity today? They get s……d and badly too.

So the baby boomer generation born in the 1950s and soon those born in the 1960s too….will be stuck without an opportunity to get a decent annuity.

What will these people do? Seriously a good question to ask – and there is nobody who has an answer.

What should Indians do? Should they buy an annuity plan from LIC? or Hdfc Life? or any other life insurance company?

My take is NO. Postpone your buying annuity as far as possible – assuming you have a choice.

Right now there are a lot of listed debentures where your yield should be in excess of 9%p.a. and rated very well. Immediately it is SBI which comes to mind – but yes, there are others too. These are bonds with a longish duration – 10 to 15 years. Other choice is go and buy bonds like REC – with a 7.83% yield (taxfree) – this is quite an attractive return.

So if you are 60 years of age now, you will need to buy an annuity only at your age of 75 when these bonds mature….

So beware, retirement annuities in US and Europe are in danger and soon the Indian annuities should also be in danger….so be prepared

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  1. The way , I look at it, buying an annuity need be only one part of the post retirement income options an Indian need choose…there can be the senior citizens scheme, Post Office schemes ,FDs et al and an annuity can also be one among them..not sure how many citizens will be able to take optimum decisions at age 75….In any case, the GOI would prefer that ppl buy annuities ( hence the push for NPS among govt servants) and avoid the pensions headache…same case here in America as well , what with companies slashing pensions, placing gr8r responsibility on workers through 401(k)s ,and Social Security slowly assuming the dimensions of a Ponzi scheme, with withdrawals exceeding contributions, the scheme is expected to run out of money by 2037( the last fact is from the official SS annual report:))

  2. I think in India the problem will become acute around 2025, when those who started employment in late 90’s start retiring,until then the pensions of most of the people are assured by the banks,governments or even for many private organizations & today’s inflated real estate prices :(,

    The current generation 20’s & 30’s is well ..completely screwed,
    sometimes looking at the inflation figures I feel to hell with the retirement, I need to live my life today at least,as comfortable retirement is not possible at all.

  3. Well, the EPFO has started fishing in troubled waters.It wants to reduce the take home pay of people and lock in its ‘captive’ investors by making more of their salaries (not just basic+da) subject to PF deduction.
    these morons think that the companies care about individual components of the salary and not CTC while designing a pay package.
    companies couldnt care less -even if 100% of the salary was PF -they will just reduce other components to zero

  4. Pravin, but u should be aware that this will mean only lower salary for you & me because any PF amount over & above 12% of salary is taxable as normal income, so in effect your CTC will remain same , your tax will remain same But your in hand will go down drastically..

    Long live Indian Government….

  5. @ Subra – Yes , please do. I would be very interested in reading your views on retirement for the current pack of 20 and 30 yr old folks.

  6. The developed world has surplus capital. The population is far less than natural assets like land, water and minerals. They also possess better technical competence. These things are required for any business to succeed. The only thing they lack will be workers and markets.

    I feel, there will be a gradual deflation of the living standard in west. Most of the businesses in poor countries that have a future, will be bought either directly or indirectly by the wealthy people.

    With all this talk about European crisis and US debt, we see that Indian Rupee only goes lower.

    I expect Indian situation to improve gradually. Like the western countries, we will find a way to manage the decline, whenever it comes. Let us worry about how to handle the prosperity first. That will be more difficult for India.

  7. Is this surplus cpaital in west or the overtime working of their money printing machines.

    Sometimes when I see some of the IT projects which our companies undertake for their western clients, I feel they give these projects either they have surplus money or they find Indian IT too cheap to spend a small amount on unnecessary projects

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