How Does an Immediate Annuity Work?
If you’ve been considering annuities, you may have discovered that there are a number of different types of annuities, each designed to address the needs of particular groups of individuals at a certain time in their lives.
When it comes to retirement income, not only does the immediate annuity offer the right benefits for many retirees, but it has the added advantage of being one of the most straightforward and easy to manage of all the annuity products.
While a life insurance policy will protect against a policyholder dying too soon, an immediate annuity actually protects against “living too long.” The rates are based on your life expectancy; live longer, and the annuity can provide an outstanding rate of return.
Immediate annuities address a pressing worry for many retirees: How do I keep from outliving my savings?
To begin the immediate annuity process, you should speak with an advisor about your financial situation with attention to three important pieces of information:
1. Your age
2. Your current liquid assets
3. Your retirement goals, including a budget for your lifestyle, future plans (such as vacations and home renovations) and how you may want to provide for beneficiaries
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In addition, you will want to factor in any special provisions. A traditional immediate annuity provides a straightforward fixed income for the life of the policyholder.
However, today, insurance companies have structured immediate annuities to offer many more options. Some are structured to continue payouts for a surviving spouse, while others even offer a limited liquidity option if you have a "cash emergency."
Once you have purchased the annuity that is right for you, it is very simple to manage. The annuity will pay you a fixed income on a regular basis (this can be monthly, quarterly, or annually).
There is no need to follow the markets or worry about changes in interest rates. While many consider this to be a “get it and forget it” type of product, I do always recommend that annuity holders still speak regularly with an advisor to review any changes in their goals or financial situation.