Immediate Annuities

Last updated: February 1, 2016

Immediate annuities can provide dependable financial security by providing a stream of income payments guaranteed to continue for the rest of your life or for a period you select. If you are about to retire, an immediate annuity may be a good place to put a large lump sum of money accumulated through a retirement plan.

To purchase an immediate annuity, you make a one-time payment, and distributions must begin within a year, but typically begin within a month.

  • Immediate annuities can be fixed or variable.

The principal in an immediate annuity is not generally or readily accessible.

  • If you need more money than the income provided by immediate annuity payments, you might want to consider other retirement options.

Why Should You Buy an Immediate Annuity?

Among the reasons to consider an immediate annuity include:

A) The income payments you receive can supplement other income sources.
  • Such as Social Security and pension payments, which may not provide enough income by themselves.

B) You choose how often to receive your income payments.
  • Whether monthly, quarterly, semiannually, or annually, there’s a payout plan to fit your particular needs.

C) You pay income taxes only as you receive your payments.
  • When you receive income payments, you will be taxed on the portion of the payment that is interest earned.

  • The portion that is principal will not be taxed if the initial deposit for the immediate annuity was made with after-tax dollars.

D) You may lessen your financial worries.
  • Financial management can be a burden in your retirement years. Because you don’t know how long you’ll live, it’s hard to be sure your resources will last as long as you need them. 
  • If you withdraw too much of your nest egg, your future income can suffer or you may run out of money entirely. If you are too thrifty when it comes to spending your nest egg, your level of living may suffer.
  • Immediate annuities can remove some of these burdens so you can concentrate better on enjoying your hard-earned retirement.

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