What is an Immediate Annuity?
An immediate annuity is an insurance product designed to provide a stream of income starting almost immediately after a lump-sum payment. Typically, the annuitant invests a substantial amount of money into the annuity, and in return, they begin receiving payments within a short time frame, often as early as 30 days after the purchase. Immediate annuities are commonly chosen by individuals seeking a steady income during retirement and can be either fixed or variable.
In the context of retirement planning, immediate annuities can serve as a way to convert retirement savings into a predictable income stream, providing a form of financial security. This product is particularly useful for those who need guaranteed income right away and want to avoid the risk of outliving their savings. With a fixed immediate annuity, the payout amount remains consistent over time, while a variable immediate annuity may fluctuate based on investment performance.
Immediate annuities are often contrasted with deferred annuities, which begin payments at a later date. They are commonly used by seniors or retirees who seek financial stability after stopping work. Additionally, immediate annuities can be tailored to meet specific needs, such as lifetime payments or payments for a predetermined number of years.
The purchase of an immediate annuity should align with one’s overall retirement strategy, as it involves transferring a significant portion of savings to an insurance company in exchange for income. This product is most effective for individuals looking for long-term financial planning with predictable and dependable income sources during retirement.
