Immediate Annuity

An immediate annuity is a financial product purchased with a lump sum payment that begins to pay out income almost immediately, typically within a month. This type of annuity can be particularly appealing for retirees who want a steady stream of income to cover living expenses after leaving the workforce. For example, if you invest $100,000 in an immediate annuity at age 65, you might receive around $5,000 annually for the rest of your life, depending on factors like your age and the interest rate environment.

One common misconception about immediate annuities is that they lock you into a contract without flexibility. While it’s true that immediate annuities provide fixed payments, many products offer options for inflation protection or guaranteed payments for a certain period, even if you pass away. For instance, a 'period certain' option guarantees payments for a minimum of 10 years, ensuring your beneficiaries receive any remaining payouts if you die early.

Mistakes often occur when individuals overlook the importance of comparing different annuity providers and their terms. Fees, payout rates, and the financial strength of the issuing company can vary significantly, impacting your overall return. Therefore, it’s crucial to shop around and consider seeking advice from a financial advisor.

The key takeaway is that an immediate annuity can provide reliable income during retirement, but it’s essential to understand the terms and compare options to ensure it aligns with your financial goals. Always evaluate your needs and consider how this product fits into your overall retirement strategy.