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Immediate Annuities

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Immediate Annuities

Immediate annuities allow you to start receiving payments immediately after purchasing. This income is usually paid over a specific number of years or for the rest of your life.

Features

Also called income annuities or immediate income annuities, immediate annuities are purchased with a lump sum amount in return for a regular, predictable income stream that you can receive monthly, quarterly, or annually. Payments can last for a specified period of time or for as long as you are alive.

Generally, income from an immediate annuity will stop once the annuitant passes away. But depending on the payout option you choose, payments can continue on to your beneficiary or spouse even after you die. Payouts may last for a guaranteed period or for as long as your spouse is alive. The money they will receive from the annuity may be reduced to 5% to 15%, depending on their age and the length of guarantee period.

Pros

Because payments can last as long as you live, fixed immediate annuities can prevent you from outliving your nest egg. This means you can be sure to have sufficient income to pay the bills every month and other necessary expenses you may have.

Variable immediate annuities on the other hand can potentially keep up with inflation through investment in portfolios.

Lastly, immediate annuities are simpler to understand, which makes comparing products much easier.

Cons

Payments from fixed immediate annuities will remain constant for a long period of time, and the amount will seem smaller and smaller due to the effects of inflation. This means that the fixed amount you get from the annuity may not be valuable enough to meet your expenses 10 years from now.

While variable immediate annuities aim to address this concern, they depend on the performance of underlying investments. If the market fares poorly, payments can also drop. In addition, the amount you receive can vary each payout date because it’s tied to market performances and not on fixed rates, which makes budgeting difficult.

Recommendations

As its name suggests, an immediate annuity is designed to issue payouts shortly after it was purchased, which makes it suitable for individuals who are near or already at retirement. Income stream from this type of annuity assures that your basic living expenses are taken care of. More so, the guaranteed income helps prevent you from outliving your money.

Although immediate annuities are a good source of income in retirement, it’s still advisable for you to set aside funds for emergencies, big purchases, and inheritance.


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