An immediate annuity is purchased with a lump sum of money. In return, the insurance company provides a guaranteed series of payouts over a specified period of time, or for the rest of your (or even your spouse’s) life — no matter how long you live. The amount of income you receive depends on a number of factors:
Hence the name, immediate annuities start paying out income immediately. Individuals in or approaching retirement may benefit from the predictable stream of income immediate annuities can provide. Contract holders can prevent outliving retirement income by purchasing an immediate annuity with a lifetime payment option. An immediate annuity allows a policyholder to lock in a predictable income stream that is unaffected by fluctuations in the stock market.
Over time, inflation can erode the value of income received from fixed return investments. Immediate annuities are no exception and may also fall victim to the damaging effects of inflation. For optimal portfolio allocation, immediate annuities can be paired with other investments that offer a hedge to inflation.
If the contract owner chooses a lifetime only payment option, the insurance company is contractually obligated to pay income for the rest of the contract owner’s life. However, if the contract owner dies shortly after buying a lifetime only immediate annuity, the insurance company keeps the remaining value of the annuity contract.
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