Immediate Annuities Explained
Those who are in retirement know too well that just because you retire, doesn’t mean that your bills and rent will go away. There are always bills after retirement, boosted many times with the cost of health care bills that are incurred due to ADL impairments or impaired health that goes with older age. For senior citizens without a pension plan or the knowledge/inclination to manage their portfolios effectively, that can be a problem. That’s where immediate annuities come in.
Immediate Annuities Explained
An immediate annuity is an insurance contract wherein an insurance company agrees to pay you fixed sum of money for either a specified period of time or, more commonly, the rest of your life in exchange for an initial lump-sum payment. While there are many options to choose from (some worth paying for and some not) and nearly limitless insurance riders designed to separate you from your money, a basic, bare-bones immediate annuity is simple to understand and comes highly-recommended for older investors seeking stability of income.
There are various companies that provide immediate annuities to individuals (read How To Compare Immediate Annuities Online for more info). Many allow the option of a fixed or variable immediate annuity. A fixed annuity will pay the same amount in payments each month based on the initial deposit made. Choosing a variable immediate annuity plan, the actual investment should be monitored closer as there are several risks. Choosing this type of plan results in monthly payments based on the current market status; meaning if the market falls, so do your payments. For obvious reasons, these types of variable payout annuities are not recommended.
Where To Look
No annuities explanation would be complete without telling you where to actually research these (highly commoditized) insurance products. The internet is clogged with websites offering annuity quotes. My favorite is ImmediateAnnuities.com. You enter your information and the amount of money you have to invest and it will give you a rough estimate on the monthly income you can expect for a variety of common options. You can then get quotes from several large insurers if you want, but I usually just use the site to get a rough idea of how much income you can expect to get from a given sum of money at prevailing rates. It’s fun to play round with.
Which Annuity Options Do You Need?
Different individuals have separate needs so there are various structures for immediate annuities. Individuals that are married and wish their spouse to receive payments are able to choose a joint annuity or a single annuity; the joint annuity allowing the spouse to add and withdraw the same as the initial investor, while the single annuity is monitored and handled solely by the investor with designation of payments to the spouse after the investor has passed away. These can also provide payouts to the spouse on the basis of a specific percentage each month in either a fixed instant annuity or a specified percentage on a variable plan.
Immediate annuities are the only form of annuity I really recommend for most investors. Depending on prevailing interest rates, you can buy a passive income stream that’s significantly higher than what you could reasonably expect from a portfolio of stocks, bonds and real estate. The downside, of course, is that your heirs won’t get much if anything after you’re gone. That, and the decision is usually irrevocable. Choose wisely.