Immediate Annuities and Retirement Portfolios
Mention the word "annuity" and eyes start to glaze over. Annuities, however, are important to explore because people are buying them all the time. Retirees are finding that immediate annuities -- that "check-a-month for life" -- can be a smart use for at least a portion of their retirement funds. An immediate annuity guarantees you'll have money coming in, every month, as long as you and your spouse are alive.
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The Specifics of an Immediate Annuity
An immediate annuity pays you a guaranteed sum each month until you die (or your spouse dies). The payment is based on your age and your spouse's (if applicable) and how much money you deposit. Payouts vary among insurance companies - sometimes by as much as 15%, so shop around. When you die (or after your spouse's death), the insurance company keeps the balance, unless you set it up with payments to a spouse or beneficiary.
An immediate annuity locks you into a fixed monthly payment that might not keep up with future inflation. Nonetheless, the product has some fans who favor the security of the income stream in the face of a dismal stock market. There are a variety of ways to purchase an immediate annuity. One way is to "annuitize" -- take a regular stream of income for the rest of your life or the lives of both yourself and your spouse. A warning: if you decide to annuitize, you can never change your mind.
The immediate annuity can provide relief for someone who worries about his ability to invest successfully or wants to guarantee an income stream to a surviving spouse. Used in combination with other retirement investments, it can take some of the worry out of those later years.
We had heard about annuities and were investigating them for our IRAs. We also heard bad things about pushy brokers over the years. So when we went to the ImmediateAnnuities.com site we were skeptical about calling them. But whenever we called their staff was really friendly. They answered all our questions and one of their reps even told us that at our ages there was no advantage to buying the annuity with our IRAs. These guys are really honest!
Choosing where to Purchase your Income Annuity
Before buying an immediate annuity, do some homework. Learn how they work and how to buy them from cost-competitive providers. An insurance contract is basically only as good as the financial strength of the insurance company that stands behind it. Unlike a bank deposit, an annuity does not come with federal deposit insurance. It may get some backing from state insurance guaranty programs. So, very carefully check the company's ratings from Moody's, Standard & Poor's or A.M. Best before investing any money.
Where to find more Information
The Internet offers a lot of information to help you make good decisions about immediate annuities. This site specializes in comparing the payouts on immediate fixed annuities. You can click on the home page to get an estimate of what your monthly payout on a fixed sum would be, or fill out a form and receive online quotes from 15 different immediate annuity sources.