Immediate Annuity

An immediate annuity is a popular type of annuity that provides guaranteed lifetime income. Compare Annuities.

Overview An immediate annuity provides a consistent, reliable stream of income that is guaranteed for a specified period of time or life.
May be good for you if
  • You are already retired or nearing retirement.
  • You have a long life expectancy.
  • You are concerned about outliving your assets.
  • You are seeking a tax-advantaged income stream.
  • Your expenses in retirement are likely to be more than your income from your pension, Social Security, and other sources of retirement income.
  • You have a minimum of $10,000 available to invest.
How it works

You pay a portion of your retirement assets to an insurance company in return for a pension-like income, guaranteed for a certain period of time or for life.

  • Income payouts begin within 30 days to one year from the purchase of the annuity.
  • Can be established as a fixed immediate annuity with fixed payments each month, or a variable immediate annuity with payments that fluctuate based on market returns.
  • Payments are comprised of a combination of principal and interest. The portion of each payment considered a return of principal is non-taxable; the portion derived from interest earned is subject to ordinary income tax rates.
Optional features
Available features include cost-of-living adjustments, coverage for spouse or partner, and income guaranteed for a set period of time (no matter how long the annuity holder lives).
Fees
There are typically no front-end fees.
Considerations
  • Purchase is generally an irrevocable contract — a lifetime purchase decision — with little or no access to funds.
  • An immediate annuity is generally not designed for leaving a legacy for heirs.
  • Consult your tax advisor about possible tax implications.

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