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OVERVIEW: IMMEDIATE ANNUITIES

The Common Features of Immediate Annuities

Whatever the annuity purchased, there are essentially two ways it can pay out, either immediately or at a later date (deferred. An immediate fixed annuity is what most people think of as the classic annuity. You start to receive periodic checks after the first month of investment.

Check are typically issued monthly, but can also be semi-monthly, quarterly, and semi-annually. This contrasts with fixed deferred annuities that automatically re-invest interest and pay out at the end of the term in one lump sum.

 

Annuities

Whatever the annuity purchased, there are essentially two ways it can pay out, either immediately or at a later date (deferred. An immediate fixed annuity is what most people think of as the classic annuity. You start to receive periodic checks after the first month of investment.

 

Check are typically issued monthly, but can also be semi-monthly, quarterly, and semi-annually. This contrasts with fixed deferred annuities that automatically re-invest interest and pay out at the end of the term in one lump sum.

 

The size of an immediate fixed annuity checks depends on several factors:

All annuities have three primary advantages: Tax Deferral, Avoidance of Probate, and a Guaranteed Income (optional) for a fixed period of time, or income for life. More specific reasons to invest in fixed and immediate annuities:

  • - Interest Rate
  • - Size of the Initial Investment
  • - Pay Period
  • - Length of the Contract

 

Larger investments with shorter terms yield the highest monthly payments. The more competitive the insurance company, the higher the interest rate, and the higher the monthly payouts as well.


Advantages of Immediate Lifetime Annuities

With social security payments in decline, an average annual inflation rate of 3%, and advances in healthcare, outliving their retirement savings is becoming more and more likely for the average American. Immediate annuities are one of the only investment vehicles that can protect against this likelihood. No other investment guarantees a lifetime income you can't outlive.

Retirement planning based on life expectancy is getting tougher. The average 65-year-old healthy American male is expected to live until 85. But, there's 50% chance of living past 85, and a 25% chance of living past 92. Underestimating your life expectancy should be blessing, but can turn into a curse if you can't cover basic living expenses. Immediate annuities can insure you against this possibility. Moreover, studies have found that 25-40% more money would be required to have this assurance with an annuity-free retirement portfolio.

Who Should Buy Immediate Fixed Annuities?

Immediate fixed annuities are ideal for investors with a 3-5 year time horizon who need a steady source of income, like retirees. If you want maximal growth and don't need guaranteed paychecks, fixed deferred annuities are a better alternative. For longer time horizons (5 years+), and investors who aren't willing to forego a guarantee, deferred variable annuities are a great choice.

Think of immediate fixed annuities as a retirement income booster. You have $100,000 in savings that you plan to use for retirement over the next 5 years. Rather than leaving it in the bank or a low-interest money market account, you give it to the insurance company at a rate of 6% (for instance). The insurance company calculates $133,822 ($100,000 * 1.06 ^ 5) and divides it by 60 months to yield a monthly payment of $2,230. Had you not purchased the annuity, you'd have $560 less to spend per month.

 

A licensed annuity specialist can help you find the best fixed annuities for free. To compare actual immediate annuity products from carriers across the country, Click Here.

 

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