As you approach retirement, it’s natural to worry about your retirement portfolio. It is also natural to become frightened during a recession, such as the ongoing downturn that started in 2008. During tough times, your entire strategy can suddenly become worthless. The supply of cash that you have carefully built over your working life is gone, vanished like so much dust. This is downright scary. What shall you do? Many individuals in this same situation end up taking part-time jobs in order to support themselves.
An immediate annuity can help you regain liquidity. Buying an annuity is like buying a monthly pension check. It is an insurance policy that pays you a lifelong income stream in exchange for a lump sum. There is no age limit for purchasing an immediate annuity; you can buy one at age 80 or 90 if you want. When the payments start is entirely up to you. Once you decide on a date, the payments are orderly and on time, appearing on that date every month for the rest of your life.
Consider several advantages to immediate annuities:
- Your insurance agent will be able to tell you what the monthly payment amount is based on your lump sum.
- The annuity is backed by the financial security and assets of an insurance company, so do your research before buying.
- This product affords you, the beneficiary, immediate peace of mind since the payments start when you choose. You can rest completely assured of a secure, stable long-term monthly income. You can even add an inflation rider to the policy so that your income will not get eaten by inflationary pressures.
- Since immediate annuities are different from stocks and bonds, there is no worry about volatility or market fluctuations. The value of the annuity remains constant. You have the protection of knowing that every month; the money will be deposited into your bank account.
- There are no fees of any kind to be paid – no management fees, no setup or administrative fees, and no annual fees.
- Favorable tax treatment – Only a small portion of income generated from an immediate annuity funded with after-tax dollars would be taxable. This is because part of every payment is considered a return of principal.
Is an immediate annuity right for you? That depends on your unique needs, of course. For those seeking to secure a future income stream, immediate annuities are a perfect way of achieving a guaranteed monthly income which will not fluctuate due to external forces. The peace of mind possible with having an income stream one cannot outlive should not be ignored.
Liquidated earnings are subject to ordinary income tax, may be subject to surrender charges and, if taken prior to age 59 1⁄2, may be subject to a 10% federal income tax penalty. Guarantees and payment of lifetime income are contingent on the claims paying ability of the issuing insurance company.