Secrets of the Immediate Annuity

With traditional pension plans going the way of the dinosaurs and not enough young people around to support the social security system, people are turning to immediate annuities to provide an income when they can no longer earn money.

Description of an Immediate Annuity

An immediate annuity is a contract between you and the insurance company. In its simplest form, you make a single lump sum payment to an insurance company after tax. In return, the insurance company pays you a regular income for the rest of your life. It is called immediate’ because you get the first payment immediately after making the deposit. The income from an immediate annuity depends on your age, the interest rates and your gender (women tend to live longer than men). You can choose monthly, quarterly, half yearly or annual payment plan. You pay ordinary tax on this income.

There are different types of immediate annuities. The one described above is a fixed single immediate annuity. There is also a variable immediate annuity that lets you to invest in stock markets.

You could also have annuities of fixed duration that covers both spouses and so on. Here, the income will be less to cover the extra charges.

The Secret Behind Immediate Annuity

Calculate your total expenses, including, debts like mortgages. Add up sources of assured income like Social Security, regular pension, rented property and so on. Use the gap between expenditure and income to calculate the immediate annuity sum.

There is a lot of variety in the annuities on offer in terms of payments, flexibility and features. Some companies offer a bonus rate for a fixed period to attract customers. See that the basic rate that is good. None charge administrative or sales fees.

You can get out of an annuity by paying surrender fees. Compare these rates. Also find out the renewal charges if you go for one with a fixed period that you outlive.

Although the past performance is of no guarantee, choose an insurance company that has a good past record and has been around for some time. After all, the company should last as long as you do!

Spread out your lump sum amount amongst different annuities and insurance companies to enjoy the best possible benefits. However always keep aside some liquid cash to take care of financial emergencies.

Immediate annuity is simple, secure and safe. Use it to supplement your income from other sources.