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Immediate Annuity Income
There's nothing like an instant return to provide a sense of security
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 Immediate annuities offer something no other retirement plans do: the opportunity to start
getting income right away. That's why they're sometimes described as payout annuities.
Since you buy an immediate annuity by paying a single premium, this type
of annuity can be a smart choice if you get a one-time pension payout, sell
a business, inherit money, or receive an insurance benefit and want to convert
these assets to a source of regular future income. With most contracts, you begin to receive the income right away.
What's more, you can purchase an immediate annuity and convert your cash to income at a time that
suits you. Typically, you can buy a contract as late as age 90, though eligibility is determined by the state where you live and the insurance company offering the contract.
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LOOKING AT THE
BENEFITS You can set up your immediate annuity
to receive income monthly, quarterly, semi-annually, or annually. That
can be a big advantage over other income-producing investments such as
bonds, which typically pay on a fixed, semi-annual schedule.
And remember that immediate annuities provide an additional benefit, since
part of each income payment is return of principal on which you owe no
tax.
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FIXED INCOME A fixed immediate annuity promises
a steady, reliable stream of income for your lifetime, for two lifetimes
(usually yours and your spouse's), or for a certain period of time. As with
other annuities, the amount you get depends on the size of the premium,
your age (or joint ages), the interest rate and the number of guarantees
that are provided and the claims-paying ability of the company providing the contract. For example, a payout guaranteed to last as long as you
and your spouse are alive will provide a smaller payment than one based
solely on your life. 
One issue with this type of annuity is that the fixed
income is vulnerable to inflation, since the cost of living will most likely
increase over your lifetime, but the money you receive from the annuity will
not.
For some people, though, being assured that a specific amount will arrive on a regular basis is
more appealing than having to take responsibility for allocating assets or worry about getting
smaller payments in some periods. For example, a surviving spouse who inherits a substantial sum
can avoid having to make investment decisions by converting the money to steady annuity income.
Remember that the older you are when you purchase an immediate
annuity, the higher the payment amount will be. That's because more of the principal is repaid each
time because you have a shorter life expectancy.
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VARIABLE INCOME  Variable immediate annuities combine the assurance
of regular income with the advantage of continuing participation in equity markets through the separate account funds offered through the contract.
That means the amount of income you receive has the potential to increase
over time, so that you're in a better position to keep pace with or exceed
the rate of inflation.
Of course, the amount you receive can also decrease at any time if investment performance declines.
Historically, however, the equity markets have been a good way to beat inflation over the long
haul.
If you have a long retirement, your investment choices will have an extended
period in which to accumulate earnings and provide income. Most variable
immediate annuities offer the same types and varieties of separate account funds
that deferred contracts provide. Most also allow you to choose the benchmark rate by which your portfolio's performance will be measured.
When you buy an immediate annuity, you may be able to elect continuing payments to
your beneficiaries for a specified number of years or a cash refund of the unpaid contract value
remaining at your death. These assurances offset the concern that the issuing company might not
pay out all you have invested if you die sooner than expected.
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WHERE ANNUITIES FIT
An immediate fixed
or variable
annuity
typically works best as part of a package that includes income
from Social Security, your
qualified retirement plans, individual retirement
arrangements (IRAs), and your other investments.
Although you should never count on just a single source of income, annuity income can be an important part of your total retirement
income package because an annuity is designed to provide a stream of income that you cannot
outlive. |
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© 2006 by Lightbulb Press, Inc.
All Rights Reserved.
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