Immediate Annuities

Immediate Annuities (also called "Immediate Payment Annuities") are the most basic type of annuity. They are an agreement between an insurance company and an investor (called an "annuitant"). The annuitant opens the account by relinquishing a lump-sum of funds to the insurance company. In return, the annuitant is guaranteed a steady income stream, beginning within the first year. The annuitant chooses the frequency of payment (e.g., monthly, quarterly, or annually). The amount of money paid depends on factors such as the annuitant's age, gender, length of payment period, and interest rates. Like deferred annuities, Immediate Annuities are available in both "fixed" and "variable" options. (Learn more about Fixed-Indexed Annuities here.)

In addition to receiving guaranteed payments within the first year, Immediate Annuities also come with benefits such as a tax-deferred status, income for one or two people for a specific period of time (or life), cost-of-living adjustments, and optional liquidity features in the event of a financial emergency. (Some of these features may vary depending on the annuity provider.)

Immediate Annuities are not the right option for every investor, possibly including those who have enough income to maintain their cost of living or have little retirement savings and need immediate access to cash. A potential drawback of Immediate Annuities is that once the annuitant dies, the insurance company stops paying and keeps the remaining balance. Still, working with a qualified Financial Advisor, there are some options and considerations to work around this by adding beneficiaries with specific terms or choosing the right Immediate Annuity for the annuitant's specific circumstances.

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Fixed and Variable annuities are suitable for long-term investing, such as retirement investing.  Gains from tax-deferred investments are taxable as ordinary income upon withdrawal. Guarantees are based on the claims paying ability of the issuing company. Withdrawals made prior to age 59 ½ are subject to a 10% IRS penalty tax and surrender charges may apply.  Variable annuities are subject to market risk and may lose value.

Riders are additional guarantee options that are available to an annuity or life insurance contract holder.  While some riders are part of an existing contract, many others may carry additional fees, charges and restrictions, and the policy holder should review their contract carefully before purchasing.  Guarantees are based on the claims paying ability of the issuing insurance company. 

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