NPS retirement income: 5 types of annuity; which one is right for you?

When your NPS account matures, you can't just walk away with the full corpus. A portion must go into an annuity, which becomes your steady income stream for the rest of your life. The plan you pick determines how much you get every month, whether your spouse keeps getting paid after you're gone, and whether your family inherits anything at all. Here's how to choose the right one.

At retirement, usually age 60, you can withdraw part of your NPS corpus as a lump sum. The rest, at least 40% under current rules, must be used to buy an annuity from a PFRDA-empanelled Annuity Service Provider. That annuity then pays you at regular intervals, monthly, quarterly, or annually, for the rest of your life or a chosen term. This single decision shapes your retirement cash flow for decades, so it's worth understanding the options before signing anything.

If nobody depends on your income, a Single Life or Life-Only Annuity gives you the highest possible monthly payout. The tradeoff is steep: payments stop completely the moment you die, with nothing passed on to anyone. This option suits risk-averse retirees who don't have a pension and are mainly worried about outliving their own savings. It's also irreversible once chosen, so it only makes sense when you're confident no one else relies on that income.

A Joint Life Annuity keeps paying income even after the primary annuitant dies, continuing to the spouse for the rest of their life. You choose upfront what percentage they'll receive, commonly 50%, 75%, or 100% of the original payout. The catch is your own monthly income will be lower than a single life plan, since the payments are designed to potentially last two lifetimes instead of one. For couples where one partner is financially dependent, this is often the safer structural choice.

If leaving money to children or heirs matters to you, look at a Life Annuity with Return of Purchase Price, which pays you income for life and then refunds your original investment to your nominee after death. Alternatively, a Period Certain Annuity guarantees payouts for a fixed term, like 10 or 20 years, and if you pass away before the term ends, your beneficiaries collect the remaining payments. Both options come with smaller regular payouts than a pure life-only plan, since part of the value is reserved for your heirs.

An Increasing Annuity raises your payout amount over time, often by a fixed rate like 3% or 5% annually, to help offset rising costs. It starts lower than a level annuity, but the gap narrows as years pass. Given that hospitalisation costs in India have nearly doubled since 2017-18, rising 77% in urban areas and 97% in rural regions according to a 2025 Economic Times report, a growing income stream can matter more than it looks on day one. The right fit depends on how long you expect your retirement to run.

Don't pick a plan just because it has the highest headline payout, that number often hides less flexibility or weaker inflation protection. Compare annuity rates across every PFRDA-empanelled provider, since small differences compound significantly over a retirement that could last decades. Match your payout frequency, monthly, quarterly, or annual, to your actual expense pattern. Factor in that pension payments are fully taxable at your income slab, even though your initial lump sum withdrawal isn't. And always weigh your spouse's financial dependence before locking into an irreversible single life plan.

There's no single best annuity, only the one that matches your situation. Single life pays the most but protects no one else. Joint life secures your spouse at the cost of a lower monthly income. Return-of-purchase-price and period certain options let you leave something behind. Increasing annuities hedge against inflation but start smaller. Take stock of your dependents, your health, and your expected costs before you commit, because once you buy, this decision is largely permanent.