Buying an immediate annuity is similar to buying yourself a pension. You pay a lump sum up front and you are guaranteed an income stream, usually for life. People who are concerned that they may outlive their assets and currently have them in very conservative investments may be a good candidate for an immediate annuity. You must also have a sizeable amount of cash to purchase this type of annuity.
The 'immediate' part of this annuity refers to the fact that about 30 days after you make the purchase, you will begin receiving your monthly income. With a deferred annuity you make payments first for a period of time before you begin receiving your monthly income.
- An annuity is an insurance product and as such, must be sold by a licensed insurance agent. That doesn't mean that you have to work directly with one specific insurance company. There are plenty of licensed insurance agents working in banks and brokerage firms. In fact, your current financial advisor or broker may be a licensed insurance agent also. That would probably be a good place to start your search. You may also have an advantage if you work with an agent not directly associated with one particular insurance firm. Agents licensed directly through one firm may not be able to offer you as many options as an independent agent.
- The big decision is what immediate annuity to purchase. There are all kinds out there and it can be very confusing! It would be easy to compare annuities if you were only comparing the basic return on investment. But your return is based on life expectancy, current interest rates, what additional features you choose, and lots of actuarial calculations.
- Most immediate annuities end when you die. If you purchase an immediate annuity today, and it pays out for six months and you die, the insurance company gets to keep the remaining money. But now there are features like continuing payments for beneficiaries. You also have more flexibility getting money out in an emergency than you used to. Be aware that all these extra features will usually lower your monthly benefit.
- There are a couple of key points to watch out for. You need to be honest with what your life expectancy is. Immediate annuities are probably a bad idea if you're in poor health. Ideally you want to be younger and in good health so you get the most benefit for your money. You also need to be aware that you are often giving up a better return in a different investment type for that guaranteed payout. Annuities also generally have a large fee assessed right up front. This large commission right up front has caused some unscrupulous agents to sell these products to unsuitable people. Not everyone is unsuitable though. Just make sure someone doesn't try to talk you into this if you aren't sure it's what you want.
- It really pays to shop around for immediate annuities. The website Immediate Annuities can help you get an idea of what your monthly payout would be given your particular circumstances. I also recommend you check out the additional information available at the Bankrate website. They have additional information that can help you with your decision.
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