What you should know about Fixed Immediate Annuities
Like many people, you may have heard the term “fixed immediate annuity” discussed frequently in the news in the past few years. Fixed immediate annuity retirement plans were one of the suggestions proposed by President Bush to help retirees supplement their retirement incomes as part of his social security restructuring proposal. Unfortunately, despite all their recent press, most people still do not know what an immediate annuity is. If you fit into this category, don’t despair; this page will discuss everything you need to know when considering purchasing an immediate annuity plan.
At first glance, an immediate annuity may not seem like a practical idea, but for many retirees they’re one of the single best ways to invest your money and guarantee income without fear of inflation, increased cost of living and poorly performing stocks.
Immediate annuities are policies which the insured pays an up-front lump sum with their retirement savings, and receives a monthly expense check for the rest of their lives. Because these payments begin immediately after opening the policy, they are called “immediate annuities.” Say for example you invest $100k up front at the age of retirement (65). Your immediate annuity might pay out $8,000 a year for the rest of your life. If you open the account right at 65, you’ll have received all of your investment back by age 72. The added benefit is that your benefits don’t cease because your initial investment is paid back. You continue to receive the same monthly expense check for the rest of your life.
There can be downsides to fixed immediate annuities. For instance, if you don’t set up your annuity with specific safeguards built in, and you die before your initial investment is paid back to you, the insurance company can keep that money with no obligations to your estate. However, if you purchase a guaranteed annuity you can set up the annuity so that your policy pays for a set amount of years, whether you are alive or not. This will guarantee your estate receives at least the balance of your initial investment back. Another guarantee you can add to your policy is inflation protection, which will increase the amount of money you receive each month based on the increase of cost of living.
So how can you tell if a fixed immediate annuity is right for you? Well there are several factors to consider. A great rule of thumb to keep in mind is if the combination of your social security benefits and any other pension payments you receive still do not meet your monthly needs, you may want to consider fixed immediate annuity. If you still have plenty of money each month after social security and pension, you probably don’t need to invest in an annuity. This can work in your favor, because the older you are when you sign up for an annuity plan, the more money you can expect to receive each month. Experts also recommend that you purchase annuities in addition to other retirement investments.