What is Immediate Annuity?

There are several different types of annuity contracts that people looking for retirement and investment plans as well as death insurance can consider. One of these annuity contracts are called immediate annuity. For people who are interested in investing in and buying an annuity contract, here are some things that you need to know about when it comes to immediate annuity.

Immediate annuity is a form of annuity that takes your money and converts it into an annuity that can provide you with immediate income. How immediate are the income we're talking about here? To be more exact, payments from an immediate annuity can be received within a month of the annuity's purchase. This is very different from insurance, and serves as a special recommendation for people who are looking for a retirement plan, above any other investment feature. It is also a very favorable option for people who are on the verge of retiring. It can cover the immediate expense of the retired person, and will make the investment last for as long as necessary.

The concept of immediate annuity sounds good in general, right? But what exactly would you get if you buy an immediate annuity contract? Perhaps the main benefit of an immediate annuity is that it is a long-term investment method which also translates into an investment-returns cycle that can last for as long as you are alive. This means that you will receive income from your immediate annuity for your entire life. Thus, for people looking for long-term financial security, immediate annuity is their best option. It can provide you with a supplemental income that can support your basic income. This is more beneficial than a savings account, which can eventually run out, whereas an immediate annuity will exist for as long as you do.

The downside, however, is that earnings accumulated from an immediate annuity contract will be taxed. The principal portion of the payments you receive will be tax-deferred because basically, you have already paid for the taxes of these funds before you invested them into the annuity contract.

If you are planning on investing, investing in an immediate annuity is a good idea. However, before you decide to do so, you need to know about the two types of immediate annuity. These are fixed immediate annuity and variable immediate annuity. The main difference is that the fixed immediate annuity pays you out a fixed amount dependent on the amount you invest in the first place and the interest rates. On the other hand, variable immediate annuity can pay yout out in increasing or decreasing amounts, depending on the performance of your chosen investments.

However, you also need to carefully consider your need for an immediate annuity. Like all other insurance and investment products, an immediate annuity is also not a favorable option for everyone. A decision to buy an immediate annuity is a lifelong one, thus you have to be very certain before you decide to take the plunge. Since the main purpose is to provide financial security, if that is not what you need and is actually looking for an investment option that can provide bigger returns, then an immediate annuity should not be your choice. An immediate annuity can answer to your financial needs for the rest of your life, but it cannot promise huge returns on your investment. Thus, immediate annuity is only for people who are primarily after financial security.