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Everyone wants to secure their life after retirement in terms of money, which is why people invest money in different places. But to keep retirement financially safe, it is very important to choose the right investment scheme. Yes, nowadays, two options are considered to be the best for this. Systematic Withdrawal Plan (SWP) and Annuity. So let's understand which of the two can be the best for retirement planning.

What is an Annuity?

Let us tell you that an annuity is a type of insurance policy in which you give a large amount to the insurance company before retirement. Then, in return, the company keeps giving you a fixed amount every month, quarterly, or annually for a lifetime or a fixed time.

Its advantages and disadvantages

Advantage:
It works to give a guaranteed income, so that you know how much money you will get every month, even if there are fluctuations in the stock market.

Disadvantages:

Once you invest, you cannot withdraw your money. It is less flexible, and if inflation increases, the purchasing power of your fixed income may also decrease.

What is a Systematic Withdrawal Plan (SWP)?

Actually, a Systematic Withdrawal Plan is an investment made in a Mutual Fund. In this, you invest a large amount of your retirement in a Mutual Fund scheme (especially a debt fund or a hybrid fund) and then keep withdrawing a fixed amount every month according to your needs.

Its advantages and disadvantages
Advantages:
It is very flexible, and in this, you can increase or decrease the withdrawal amount according to your needs, or you can also stop it for some time. Along with this, you keep getting returns on your remaining amount, due to which the effect of inflation is reduced to some extent.

Disadvantage:
It is linked to the market, so returns are not guaranteed. Yes, if the market falls, the value of your investment may also decrease, which may affect your monthly income.

Main differences between SWP and Annuity

Type SWP (Systematic Withdrawal Plan) Annuity
Investment linked to mutual funds, linked to an insurance policy
Returns linked to the market, no guarantee of returns. Fixed and guaranteed returns
Flexible. Very flexible, the amount can be changed or stopped anytime. Very little flexible, once fixed, change is not possible
Impact of inflation: Can beat inflation because returns keep coming on the remaining amount. Inflation has an impact because income is fixed
Withdrawal of funds: You can withdraw the entire amount in an emergency. Cannot withdraw the amount once invested

Tax Only capital gains on the withdrawn amount are taxed, making it more tax-efficient. Monthly income is taxed as per your income tax slab.

Which is the better option for you?
So if you want a safe and fixed income, and do not want to take the risk of stock market fluctuations, then an annuity may be better for you. But on the other hand, if you want flexibility, control over your investment, and inflation-beating returns, and are willing to take the risk of the stock market, then SWP can be a great option. (Note: This article is for information only and should not be considered as investment advice in any way. recommend consulting financial advisors for investment)

Disclaimer: This content has been sourced and edited from Zee Business. While we have made modifications for clarity and presentation, the original content belongs to its respective authors and website. We do not claim ownership of the content.