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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