Immediate Annuities are the most traditional annuity product available. In simple terms, you give an insurance company your money and in return receive income payments for either a specified period of time or the remainder of your life; the choice is yours.
Pros and Cons of Immediate Annuities: Pros
The benefits are all on the income side…
- Lifetime Income- With an immediate annuity you will receive a higher level of guaranteed income than you can get with any other product.
- Income Adjustments- If you add a cost of living adjustment (COLA) or tie your payments to the consumer price index (CPI) than you’ll receive guaranteed income that rises over the years to meet the increases in living expenses.
- Flexible Payment Terms- The contract can be structured to pay you the way you want to be paid. Single life payment options are available for individuals and joint options for couples. Also, income can be guaranteed for a specific number of years or until the original principle is repaid, even if the payments are made to your heirs.
Pros and Cons of Immediate Annuities: Cons
The disadvantages can be avoided with proper planning…
- Locked Contract- Once you purchase a contract, it is set in stone unless you decide to sell your payment stream, which should only be considered in dire circumstances. A thorough financial analysis is necessary before final purchase. As a rule, allocate just enough money in an immediate annuity to generate a comfortable level of income and reserve the remainder of your assets for other investments.
- Surrender of Principle- You give the company money and they pay you. When you’re gone, the payments stop and the company keeps the remainder balance, if any. If you outlive expectations then you win big because the company must pay for life. Explore the flexible payment terms available to ensure your spouse or heirs are protected with continued income or return of principle. It may cost you a little on the income side but it’s usually the correct route to take if you have someone to take care of besides yourself.
This should give you a good idea of how immediate annuities work and the pros and cons of the product. If you want more, sign up for a free membership and download Immediate Annuities: The Official Report. This report goes into greater detail on how these annuities work and the payment terms available. Also included is a payment rate spreadsheet so you can do a little calculation on your own and begin to see just how an immediate annuity can give you the safety, flexibility and profitability that everyone wants in retirement. You can sign up in the form to the right.