Immediate annuity
With working years shrinking and post retirement years increasing, people have concerns about how to manage their income and expenses after retirement. The fear about outliving the income is also becoming a major concern as the life expectancy is becoming longer now, sometimes more than the number of working years.
Therefore planning for a financially secure future post retirement means more than just accumulating assets. It is also essential to know when and how to use those assets to generate a steady stream of income. This is made possible by a retirement income annuity program, namely Immediate Annuity. This program allows the investor to choose a certain amount as income and a specific period over which he or she wants to receive. Though one may have their children to fall back at the time of a financial crisis, it is always good for one to plan his life well after retirement especially on the financial front. That is where immediate annuity plays a very important role.
Immediate Annuity
The immediate annuity is an excellent solution for creating a continuous fixed income periodically which is spread over a number of years as specified in the annuity. The retirement benefits or any such package received in lump sum can be invested in immediate annuities to be paid in installments like monthly, quarterly etc, and the invested assets are tax deferred. The annuity payout options are varied and are suited to individuals with different circumstances, needs and financial goals. In the Lump sum option, the individual makes regular investments over a number of years so that he can get a lump sum at the time in future as specified in the annuity. The systematic withdrawal option is another way to begin or end withdrawals of the annuity at any time, or even vary the payout amount, or receive a specific amount at regular intervals till the assets are paid out in full. The Annuitization option allows the investor to convert his annuity into a guaranteed income for life or for a specified number of years according to his preference.
Deferred Annuity
The payout period starts at the time specified in the annuity contract by the investor. This is usually the period after retirement. The annuity allows for complete cash out against the surrender of the annuity or withdrawal of partial amounts as and when the need arises, or to convert the deferred annuity into an annuitization receiving a steady stream of income. This flexibility is a major advantage of the deferred annuity as the investor need not be stuck with one option that becomes unsuitable to his changed situations.
Benefits
1. Income options: There are a variety of income options available in immediate annuity like lifetime income, join and survivor benefits where the investor can name a beneficiary for receiving the income after his or her death, a time period of how long the payouts are to be received can be specified by the investor. There is a flexibility to choose from many options of starting and finishing dates, the exact amount and the like.
2. Contract types: Immediate annuities offer guaranteed fixed payments irrespective of market fluctuations. The variable immediate annuities also offer a fluctuating income depending upon the market performance of the stock markets where the funds are invested.
3. No fees for fixed annuities: No set-up or management fee is charged if fixed annuities are chosen by the investor.
4. Specific time: The investor can defer the payments for a year or choose to start as immediately as 30 days after the purchase of the policy.
5. The principal part of the payouts is tax free. The interest part is liable for tax.
6. The facility to make direct payments to services, utilities and bills from the monthly payouts.
7. Modification of payments: Some options allow the investor to modify the payments by making adjustments in the cost of living expenses to beat the inflation.
The investor should keep in mind that the variable annuities are meant for long term investments primarily as retirement income vehicles. They are prone to market fluctuations and the related risk. They are sold by prospectus which contains all the information in connection with investing in variable annuities such as the charges, objectives, expenses etc. The investor should carefully go through all the information and make informed decisions by enlisting the help of a financial advisor to zero in on the right option that matches all the needs and financial goals and the investing capacity.
Immediate Annuity Calculator
The income from the immediate annuity is meant to start immediately after the investment or after a year after the investment is made as per the choice of the investor. The income is guaranteed for lifetime but in the event of death of the investor before the annuity ends, the remaining amount in the annuity is lost. The calculator can help the investor in estimating the monthly payouts for a certain investment under specific options in the annuity.
The right look at immediate annuities
Immediate annuities are gaining more popularity in the present times. But without proper understanding, it may end up problematic. The annuity is misunderstood as a combination of life insurance and return oriented investment due to the aggressive marketing of the agents who are keen to push the products that earn the maximum commission for them. Such pitfalls can be avoided by consulting the professional financial advisors and planners. The pension and Social security cannot be invested in risky investments if such investments are aimed to generate future income as the only source of income in the old age. The ludicrously expensive healthcare and also the rise in costs and inflation can further erode the retirement income. A single premium immediate annuity, SPIA in short, ensures an income stream that lasts the lifetime of the investor. The immediate annuity provides income immediately after retirement. In the fixed immediate annuity can be bought with a lump sum to be able to pay for the expenses in the future spread over long years. The monthly payouts continue as long as the investor lives. This type of annuity is preferred by conservative investors who want to stay away from the hassles of any other form of investment.
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