Annuity: Immediate Fixed Income
What are Immediate Annuities?
Immediate annuities are pretty simple, basically the mirror image of a life insurance policy. Rather than pay regular premiums to an insurance company who pays a lump sum to your beneficiaries upon your death, you give the insurer a lump sum of cash in return for regular payments (usually monthly) until you die.
Payment Options
Most annuities offer a variety of payment options. You can receive payments for the rest of your life, or as long as you and your spouse are alive, or for a specific number of years, typically 10 to 20. You can even combine these options. For example, you can buy an annuity that has a life payment with 10-year period certain. That’s annuity-speak meaning you will receive income for the rest of your life, but if you die within ten years of buying the annuity, a beneficiary will receive your payments (or their cash equivalent) for the remaining time in the 10-year period.
Is an annuity right for you?
Here are four questions you can use to decide if immediate annuity is right for you.
- Do you prefer safety and guarantees over less certain options?
- Are less than 50% of your projected retirement expenses covered by guaranteed sources of income such as Social Security and pensions?
- You are healthy and think there is a fair chance you may live longer than average life expectancy. (Keep in mind 50% of people will live longer than average. That is how averages work.)
- Are you concerned about over-spending early in retirement, running out of money later, and protecting your future self from any poor decisions due to cognitive decline?
If you have a yes answer to any of the questions above, an immediate annuity may have a place in your retirement income plan. Be sure you look at diversifying your annuity purchase across insurance carriers and over time.
Contact us if you have questions or you would like to review your portfolio.
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