Meera: Converting a Widow's Fixed Deposits into Income
Meera, 62, is a widow with no pension. She has ₹1.2 crore in fixed deposits maturing next month, a paid-off flat, and ₹15 lakh already in Senior Citizens' Savings Scheme. Her monthly expenses are ₹60,000, and she wants 'the highest guaranteed monthly income' with no market risk. Her son lives abroad and sends money only occasionally. She has no separate health insurance and no emergency fund outside the FDs. She is otherwise healthy and expects to live into her late 80s. A distributor has proposed a single-premium immediate annuity quoting about 6.1% and a unit-linked plan with a 10-year lock-in; both pay him commission. Meera asks whether the annuity alone can meet her needs and whether she should put the entire ₹1.2 crore into it.
1. Assess whether a 6.1% immediate annuity on the entire ₹1.2 crore can meet Meera's income need, including inflation and liquidity.
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On ₹1.2 crore, a 6.1% annuity pays about ₹7.32 lakh a year, or roughly ₹61,000 a month before tax. That just covers ₹60,000 today, but it is a nominal fixed payout. At 6% inflation, its real value halves in about 12 years, so by her late 70s it may cover only around ₹30,000 in today's money. It also leaves no emergency fund, no health cover and no liquidity for home repairs or nursing care. Annuity income is taxable at her slab, so her net spendable amount is lower. The annuity is therefore not a complete solution. A better structure keeps a liquidity reserve, buys health cover, uses SCSS and a ladder of deposits for near-term spending, and annuitises only the portion needed for essential floor income. The rest needs some inflation-sensitive growth, subject to her risk capacity.
2. How would you compare the immediate annuity, the unit-linked plan and a systematic withdrawal plan for Meera?
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Compare them on purpose, not just return. The immediate annuity provides lifetime guaranteed income but is largely irrevocable, nominal and illiquid; it suits only the essential floor. The unit-linked plan has market risk, a 10-year lock-in, charges and no guaranteed income, so it does not match a 62-year-old widow who needs stable cash flow and may need liquidity. A systematic withdrawal plan from a diversified debt-oriented portfolio can be flexible and inflation-aware, but it is not guaranteed and can exhaust if withdrawals are too high. For Meera, a blend is more suitable: SCSS to the permitted limit, a deposit ladder for 3-5 years of spending, a health insurance reserve, and a partial annuity for baseline expenses. Disclose commissions on both proposed products and document why a single product is not suitable.
3. What should the adviser do about the missing health cover and emergency fund?
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These are higher priorities than maximising annuity payout. Without health cover, one hospitalisation could force her to break deposits or surrender an annuity. Before locking up capital, carve out a medical buffer and evaluate a senior-citizen health policy, noting pre-existing condition waiting periods and premiums. Keep at least 6-12 months of expenses, plus a medical deductible, in liquid deposits. The adviser should not use the entire corpus for income merely because the client asks for 'highest guaranteed monthly income'. Explain that liquidity and insurance are part of retirement security and that the son's occasional support cannot be treated as a reliable plan.