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Can the SBI Life Smart Annuity Income Plan offer a lifetime of steady income, regardless of market ups and downs?
Could the SBI Life Smart Annuity Income Plan be the key to ensuring guaranteed income through retirement?
Is the SBI Life Smart Annuity Income Plan designed to deliver a reliable income, providing peace of mind even in unpredictable times?
In this review, we’ll examine the features, benefits, and drawbacks of the SBI Life Smart Annuity Income Plan. We’ll also calculate the Internal Rate of Return (IRR) to assess its financial value.
Table of Contents:
What is the SBI Life Smart Annuity Income Plan?
What are the features of the SBI Life Smart Annuity Income Plan?
Who is eligible for the SBI Life Smart Annuity Income Plan?
What are the plan options and benefits of the SBI Life Smart Annuity Income Plan?
Free look period of the SBI Life Smart Annuity Income Plan
Surrendering the SBI Life Smart Annuity Income Plan
What are the advantages of the SBI Life Smart Annuity Income Plan?
What are the disadvantages of the SBI Life Smart Annuity Income Plan?
Research Methodology of the SBI Life Smart Annuity Income Plan
Benefit Illustration – IRR Analysis of the SBI Life Smart Annuity Income Plan
SBI Life Smart Annuity Income Plan Vs Other Investments
SBI Life Smart Annuity Income Plan Vs Fixed Income Instruments
SBI Life Smart Annuity Income Plan Vs Inflation-adjusted Income
Final Verdict on SBI Life Smart Annuity Income Plan
What is the SBI Life Smart Annuity Income Plan?
SBI Life Smart Annuity Income Plan is an Individual, Non-Linked, Non-Participating, General Annuity product. With the payment of a one-time premium, you receive fixed annuity payments throughout your life, irrespective of future market conditions safeguarding your financial future post-retirement
What are the features of the SBI Life Smart Annuity Income Plan?
- Make a one-time payment to secure your financial future.
- Enjoy guaranteed regular income for life.
- Choose from five annuity options tailored to your needs.
- Benefit from incentives for higher purchase amounts.
- Flexibly select the payout frequency that suits your preferences.
Who is eligible for the SBI Life Smart Annuity Income Plan?
The product will only be offered to the subscribers of the National Pension Scheme (NPS) regulated by the Pension Fund Regulatory and Development Authority (PFRDA).
The entry age, minimum purchase price and other criteria will be as prescribed by the Pension Fund Regulatory and Development Authority (PFRDA).
What are the plan options and benefits of the SBI Life Smart Annuity Income Plan?
Benefits available under the product vary based on Annuity Options. Once selected it cannot be changed.
| Option | Annuity | Death Benefit |
| Single Life Annuity | Payable at a constant rate throughout the life of the annuitant | NIL |
| Single Life Annuity with Return of Purchase Price | Payable at a constant rate throughout the life of the annuitant | The purchase price shall be payable to the nominee |
| Joint Life Annuity | Payable at a constant rate as long as one of the annuitants is alive | NIL |
| Joint Life Annuity with Return of Purchase Price: | Payable at a constant rate as long as one of the annuitants is alive | In case of death of the last surviving annuitant or simultaneous death, the purchase price shall be payable to the nominee |
| NPS – FAMILY INCOME | Payable at a constant rate throughout the life of the annuitant (single life) or as long as one of the annuitants is alive (Joint life) as the case may be | The refund of the purchase price shall be utilized to purchase an annuity contract afresh for living dependent parents (if any) |
Free look period of the SBI Life Smart Annuity Income Plan
If the SBI Life Smart Annuity Income Plan policy holder disagrees with any of the SBI Life Smart Annuity Income Plan policy terms or conditions, he has the option to return the policy to the company for cancellation within 30 days beginning from the date of receipt of the policy document, whether received electronically or otherwise.
Surrendering the SBI Life Smart Annuity Income Plan
The SBI Life Smart Annuity Income Plan policy can be surrendered any time after six months from the date of commencement, if the annuitant / primary annuitant /secondary annuitant, or spouse or any of the children of the annuitant is diagnosed as suffering from any of the critical illnesses as allowed under the product.
It is available only under Single Life Annuity with Return of Purchase Price and Joint Life Annuity with Return of Purchase Price.
What are the advantages of the SBI Life Smart Annuity Income Plan?
- A simple, one-time payment solution.
- Offers lifelong income, with the option to continue payments to your spouse after your lifetime.
- Higher purchase amounts earn additional annuity benefits.
- Option to return the purchase price, allowing you to leave a legacy for your beneficiaries.
What are the disadvantages of the SBI Life Smart Annuity Income Plan?
- Annuity payments are fully taxable.
- The selected annuity option cannot be changed after the SBI Life Smart Annuity Income Plan policy begins.
- Annuity payments do not account for inflation adjustments.
- The SBI Life Smart Annuity Income Plan policy can only be surrendered upon diagnosis of a critical illness, and only if the return of purchase price option was chosen.
Research Methodology of the SBI Life Smart Annuity Income Plan
Before making a final decision, let’s calculate the Internal Rate of Return (IRR) using the figures provided in the SBI Life Smart Annuity Income Plan policy brochure. The SBI Life Smart Annuity Income Plan offers a variety of annuity options to suit different cash flow preferences.
Some individuals may prefer a fixed income, while others might choose options like a steady income with a return of the purchase price. However, analysing cash flows alone isn’t enough to identify the best plan.
Benefit Illustration – IRR Analysis of the SBI Life Smart Annuity Income Plan
Consider a 60-year-old male who invests ₹25 Lakhs in the SBI Life Smart Annuity with a one-time payment. Since all options provide lifetime income, we’ll assume a life expectancy of 85 years.
He selects the Life Annuity with a return of purchase price, receiving an annual annuity of ₹1,73,940. Let’s calculate the IRR for this cash flow.
| Male | 60 years |
| Purchase Price | 25 Lakhs |
| Life Expectancy | 85 years |
| Annuity | ₹ 1,73,940 |
Assuming the purchase price is returned at age 85, the IRR comes to 6.85% as per the SBI Life Smart Annuity Income Plan’s Maturity calculator, which is comparable to—or sometimes lower than—the returns from debt instruments.
Furthermore, this investment is locked in, with surrender allowed only under specific conditions.
| Age | Single Life Annuity with Return of Purchase Price |
| 60 | -25,00,000 |
| 61 | 1,73,940 |
| 62 | 1,73,940 |
| 63 | 1,73,940 |
| 64 | 1,73,940 |
| 65 | 1,73,940 |
| 66 | 1,73,940 |
| 67 | 1,73,940 |
| 68 | 1,73,940 |
| 69 | 1,73,940 |
| 70 | 1,73,940 |
| 71 | 1,73,940 |
| 72 | 1,73,940 |
| 73 | 1,73,940 |
| 74 | 1,73,940 |
| 75 | 1,73,940 |
| 76 | 1,73,940 |
| 77 | 1,73,940 |
| 78 | 1,73,940 |
| 79 | 1,73,940 |
| 80 | 1,73,940 |
| 81 | 1,73,940 |
| 82 | 1,73,940 |
| 83 | 1,73,940 |
| 84 | 1,73,940 |
| 85 | 25,00,000 |
| IRR | 6.85% |
With the rising cost of living, a fixed income may struggle to keep up, as inflation erodes the purchasing power of the annuity, potentially causing a financial shortfall.
The combination of a modest return rate and restricted access to funds underscores a significant limitation of the SBI Life Smart Annuity Income Plan.
SBI Life Smart Annuity Income Plan Vs Other Investments
In this section, let’s explore alternative investment options where you can allocate your retirement corpus. For generating regular cash flow, other market products offer guaranteed returns and consistent income.
SBI Life Smart Annuity Income Plan Vs Fixed Income Instruments
Here are some fixed-income instruments that offer higher returns than the SBI Life Smart Annuity Income Plan, along with the added advantage of giving you discretionary access to the corpus.
Senior Citizen Savings Scheme (SCSS): SCSS provides a return of 8.20% per annum, making it a reliable option for seniors to park their retirement corpus and receive a steady income.
Bank Fixed Deposits (FDs): Bank FDs offer rates between 7% and 8% per annum, with some banks providing an extra 25 basis points for senior citizens. Interest can either accumulate or be paid out as regular income.
RBI Floating Rate Bonds: These risk-free bonds currently offer an interest rate of 8.05% per annum, with semi-annual payments. Although they come with a seven-year lock-in period, senior citizens can withdraw early, albeit with a penalty.
These options allow flexible access to the corpus when needed, a significant advantage over the SBI Life Smart Annuity Income Plan.
However, they only provide fixed incomes without inflation adjustments. To combat inflation, it’s essential to include equity in your portfolio. Regular portfolio rebalancing can help you achieve inflation-adjusted income and ensure your corpus endures.
SBI Life Smart Annuity Income Plan Vs Inflation-adjusted Income
For comparison, let’s revisit the previous example. Suppose 60% of ₹25 Lakhs, or ₹15 Lakhs, is invested in equity for growth, while the remaining 40%, or ₹10 Lakhs, is invested in debt for regular income.
Assuming a 12% return on equity and a 6% return on debt, we will replenish the debt portion from equity every five years.
| Age | Equity Portion | Shift from Equity to Debt | Debt Portion | ||||
| Opening Balance | Yearly withdrawal | Closing Balance | Opening Balance | Yearly withdrawal | Closing Balance | ||
| 61 | 15,00,000 | – | 16,80,000 | – | 10,00,000 | 1,73,940 | 8,75,624 |
| 62 | 16,80,000 | – | 18,81,600 | – | 8,75,624 | 1,73,940 | 7,43,785 |
| 63 | 18,81,600 | – | 21,07,392 | – | 7,43,785 | 1,73,940 | 6,04,035 |
| 64 | 21,07,392 | – | 23,60,279 | – | 6,04,035 | 1,73,940 | 4,55,901 |
| 65 | 23,60,279 | – | 26,43,513 | – | 4,55,901 | 1,73,940 | 2,98,879 |
| 66 | 26,43,513 | 10,00,000 | 18,40,734 | 10,00,000 | 12,98,879 | 1,84,376 | 11,81,372 |
| 67 | 18,40,734 | – | 20,61,622 | – | 11,81,372 | 1,84,376 | 10,56,816 |
| 68 | 20,61,622 | – | 23,09,017 | – | 10,56,816 | 1,84,376 | 9,24,786 |
| 69 | 23,09,017 | – | 25,86,099 | – | 9,24,786 | 1,84,376 | 7,84,834 |
| 70 | 25,86,099 | – | 28,96,431 | – | 7,84,834 | 1,84,376 | 6,36,485 |
| 71 | 28,96,431 | 28,96,431 | -0 | 28,96,431 | 35,32,916 | 1,95,439 | 35,37,725 |
| 72 | -0 | – | -0 | – | 35,37,725 | 1,95,439 | 35,42,823 |
| 73 | -0 | – | -0 | – | 35,42,823 | 1,95,439 | 35,48,227 |
| 74 | -0 | – | -0 | – | 35,48,227 | 1,95,439 | 35,53,956 |
| 75 | -0 | – | -0 | – | 35,53,956 | 1,95,439 | 35,60,028 |
| 76 | -0 | -0 | 0 | -0 | 35,60,028 | 2,07,165 | 35,54,034 |
| 77 | 0 | – | 0 | – | 35,54,034 | 2,07,165 | 35,47,681 |
| 78 | 0 | – | 0 | – | 35,47,681 | 2,07,165 | 35,40,947 |
| 79 | 0 | – | 0 | – | 35,40,947 | 2,07,165 | 35,33,808 |
| 80 | 35,33,808 | 2,07,165 | 35,26,241 | ||||
| 81 | 35,26,241 | 2,19,595 | 35,05,045 | ||||
| 82 | 35,05,045 | 2,19,595 | 34,82,577 | ||||
| 83 | 34,82,577 | 2,19,595 | 34,58,760 | ||||
| 84 | 34,58,760 | 2,19,595 | 34,33,515 | ||||
| 85 | 34,33,515 | 2,19,595 | 34,06,755 | ||||
The initial annual withdrawal is set at ₹1,73,940, similar to the Life Annuity with Return of Purchase Price under the SBI Life Smart Annuity Income Plan.
To counter inflation, we assume a 6% increase in annual withdrawals every five years. At the end of life (age 85), the remaining corpus matches the return of the original purchase price.
With this strategy, by age 85, your corpus would grow to ₹34 Lakhs, significantly surpassing the ₹25 Lakhs return of purchase price offered by the SBI Life Smart Annuity Income Plan.
In SBI Life Smart Annuity Income Plan the equity portion is fully shifted to debt by age 71, but this transition can be adjusted based on risk tolerance. Even with a complete debt shift, the corpus outlasts you, providing both inflation-adjusted income and full liquidity.
By comparison, the SBI Life Smart Annuity Income Plan lacks liquidity and inflation protection, both of which can be achieved by strategically incorporating equity in your portfolio.
Final Verdict on SBI Life Smart Annuity Income Plan
For retirees, securing a steady income stream during post-retirement years is a top priority. The SBI Life Smart Annuity Income Plan offers lifelong income in exchange for a one-time lump-sum payment, which is its primary appeal.
However, inflation is a critical factor that many retirees overlook in their retirement planning. While the annuity might seem adequate initially, inflation gradually erodes purchasing power, making a fixed income less effective over time and it also has a high agent commission.
A fixed annuity often falls short of fulfilling a retiree’s long-term financial needs. Cash flow analysis clearly illustrates that a static income, unadjusted for inflation, does not provide lasting security.
Furthermore, the SBI Life Smart Annuity Income Plan’s restrictions on fund access present an additional challenge, calling into question the SBI Life Smart Annuity Income Plan’s effectiveness for retirement savings management.
The comparative analysis highlights that there are more favourable alternatives offering steady income, liquidity, and potentially higher returns—advantages that the SBI Life Smart Annuity Income Plan lacks.
Including equity in your retirement portfolio is essential for ensuring that your corpus sustains inflation-adjusted income, supporting you through retirement.
Retirement planning is best when customized, as no single annuity or pension plan fits everyone’s needs.
When it comes to financial advice, are Quora, Facebook, and Twitter the final word?
For a tailored retirement plan, consult a Certified Financial Planner who can help design a strategy aligned with your unique goals and circumstances, setting you up for a secure and worry-free retirement.
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