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Tags: Immediate Annuities | Income Annuities

Do You Need an 'Immediate' Annuity?

Joe Stark By Thursday, 02 October 2014 01:22 PM EDT Current | Bio | Archive

When some people hear the word “annuity,” they think of getting a monthly check.
They don’t realize there are two basic options, immediate and deferred annuities.

To clarify, these terms could be thought of as “income" or “savings” annuities.

Immediate or income annuities allow a person to give a cash amount to an insurance company, which then pays the owner of the annuity. The owner of the annuity then receives a monthly check either for life or a set period.

The second type are deferred annuities — which are accumulation vehicles. A person with such an annuity accumulates his or her money first and defers payments until a later time. Deferred annuities can either be fixed, variable, or indexed annuities.

Opting for an immediate annuity opens up an income stream soon after your initial premium. With an immediate annuity, the policyholder, or consumer, gives the insurance company a lump sum of money. And as its name suggests, the consumer immediately begins receiving a structured stream of payouts.

The amount of the payment is based on criteria such as your age and gender. Other factors include the amount of your initial premium and term of the contract. You can set the length of term for payouts.

They can be set for a certain number of years, usually 5, 10, 15, 20, or 25.

You also can elect an option for payouts to continue for the duration of the contract to a beneficiary — or multiple beneficiaries — should you not live the designated number of years of the annuity. You can also tailor the income stream to be for life, and then you know you will get a set amount periodically as long as you live.

You can never outlive this income stream.

With a lifetime income immediate annuity, you can add the option for a beneficiary to continue receiving payments for up to the first 20 years of the policy period. There is also an option to elect for a beneficiary to receive a refund payment, which equals the remaining portion of your premium.

Although every situation is unique, adding one of these guarantee features to the immediate annuity contract is a safe bet. This will reduce the monthly periodic payouts, but in the event of an untimely death shortly after taking out the contract, the beneficiaries will receive the ongoing stream of payouts or a lump sum payment, depending upon how the contract is structured. Contrast that with the “life only” payout which would cease all payouts upon death even if only one payout had been made.

Payments on an immediate annuity can be structured to go out monthly, quarterly, annually, semiannually — however an owner chooses.

You truly can structure the payout however you want.

No matter their frequency, payments are composed of two parts:
  • One part is income earned on your principal; think of this like interest earned on your premium.
  • The other is the return of a portion of your principal, or a small slice of a return of your premium.
Because your monthly payment includes that return on your money, which is typically made after taxes, you only pay tax on the earned income portion of the payment.

One of the biggest benefits of an immediate annuity is everything is typically spelled out upfront when the contract is made so there’s little in the way of surprises down the road.
On day one, you know exactly what amounts you’ll receive and for how long.

Is this product for you?

Conversations with your financial planner can help you decide whether an immediate annuity fits into your retirement portfolio. This conversation needs to be a fact-finding mission that helps you and your adviser determine your risk tolerance and suitability, and include a discussion about the diversity of your retirement portfolio.

For instance, if you’re looking for income right away, an immediate annuity might fit into your plan. But if you’re looking to put a portion of money into a vehicle that will grow until you turn on the income stream in 5 or 10 — or however many years, a deferred annuity may be a better option.

I will discuss deferred annuities in depth in my next article.

You can find out more about how to increase your retirement income by up to 30 percent in Crown Atlantic's new report "The Annuity Primer: Get Guaranteed Income for Life." Go online to CrownAtlantic.com/Protect or call today 855-221-5546.

Joe Stark is the CEO of Crown Atlantic Insurance, LLC in Boca Raton, Fla.  Stark is an insurance industry veteran with more than 25 years of experience. For more of his reports, Go Here Now.

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Immediate or income annuities allow a person to give a cash amount to an insurance company, which then pays the owner of the annuity. The owner of the annuity then receives a monthly check either for life or a set period.
Immediate Annuities, Income Annuities
Thursday, 02 October 2014 01:22 PM
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