People do not realize how badly a market downturn can effect your retirement portfolio when you are already in retirement. Most people barely have enough savings to retire as it is. These volatile markets kill any chances of living a full retirement lifestyle for most people. These people have to get part or full time jobs and are usually working jobs that pay low wages. So how can you protect yourself if you are retired and are afraid of running out of money? How can you guarantee part of your retirement income?
Immediate annuities are annuity products that start payments to the beneficiary of the product right away. These are good products that allow you to have a guaranteed monthly payment for the remainder of your life, whether you would normally run out of money or not. These product can be purchased up to 90 years old.
Immediate annuities are, like fixed annuities, insurance policies that earn a guaranteed percentage a year and compound to build a larger cash base. The difference is in this case, you pay a large lump sum for an immediate annuity, and your payments start within 7 days up to 1 year from the date of policy activation. You choose when you want the benefits to start in that time frame. From that point on you will receive your monthly payment every month for the rest of your life. The payments are taxed as ordinary income.
The funds can come from a variety of sources. For a tax free exchange, 1035 exchanges and roll overs are common into these vehicles.
The same rules apply for immediate annuities that apply for all other annuities. The only difference is that you can only contribute once to this product. That is why this is used to fix a large lump sum.
Unlike other annuity projections, your financial adviser or insurance agent will be able to tell you exactly what your monthly payment will be based on the size of the transaction.
It is important to note that it is not advisable to put ALL of your money into an immediate annuity. However, a large sum is required and it may take most of your portfolio to get the payment you need. You should always have a portion of your portfolio in variable accounts to take advantage of potential market gains. This amount should be less and less as you grow older.
Immediate annuities are not for everyone and should only be used if you want to create a guaranteed payment that you want to start getting right away or within 5 years. Always consult with your financial adviser before making a decision on an annuity product.