The most common question among working people is "will I have enough to live on after I retire?" An annuity policy is one of the tools that helps answer it. This article summarises what a beginner should know before starting.
How an annuity policy works
The principle is that you pay premiums during your working years, and when you reach the age specified in the policy (55 or 60, for instance) the company pays an annuity back to you in instalments, continuing to the age stated. It converts a pot of savings into regular income after retirement, under that plan's conditions.
How it differs from saving and investing
The strength of an annuity policy is its consistency and its clearly defined schedule under the contract, whereas other forms of investment offer a different kind of return along with greater volatility. Many people therefore use an annuity as the floor of their retirement income, adding other investments according to the risk they can bear.
The tax deduction for annuity premiums
Annuity premiums are deductible up to 15% of income and not more than 200,000 baht under the current rules, as a limit separate from ordinary life insurance premiums — so someone who has already used their life insurance allowance in full still has room for further tax planning. The conditions depend on the law in each tax year.
Questions to answer before buying
- How much monthly income do you want after retirement, and from which sources?
- How many years are left to accumulate? The earlier you start, the lighter the annual premium.
- Can you pay the premium continuously throughout the payment term?
- At what age does the plan you are looking at begin paying the annuity, and to what age does it pay?
What to consider
An annuity policy is a long-term contract. Surrendering before term may return less than the premiums paid, so choose a premium budget that does not affect your liquidity, and understand each plan's benefit table before deciding. Benefits follow the conditions stated in the policy.
How to begin
Start by estimating your post-retirement expenses roughly, comparing them against the income sources you will have — social security, a provident fund — and seeing what gap remains. Then consider how large a role an annuity should play in your plan. If you are unsure, your agent can always compare the options with you first.