Annuities-Stable Income for Life
A steady retirement income stream—for life. That’s the promise of an annuity. Income that’s set by a contract an unchangeable. More and more retirees are re-aligning their retirement plans to avoid heavy reliance on the stock market. Market uncertainty makes financial products tied to them riskier than ever. Your retirement account doesn’t get a do-over.
Many find that an annuity is a difficult financial product to understand. How do the payments work? Is it annual? How important to my future should an insurance company be? What annuities are worth it? Today we’re covering what an immediate annuity can help with and why more and more retirees are turning to an immediate fixed annuity to provide guaranteed income for life. Thankfully, information on annuity rates and specific terms in contracts are easier to compare than ever before.
Fixed Annuity—A Retirement Friend
Retirement income is the last place you want to face uncertainty. Your ability to acquire an income stream won’t come back. If you’ve hit retirement and are looking for where to find income for life, a fixed annuity is a great idea. Fixed annuities represent the best option of growth and certainty in retirement investing. Annuities make a great partner to other sources of income like a pension, Social Security, and mutual funds. They’re a low-risk investment that provides guaranteed income.
Insurance companies sell annuities in a manner similar to how a bank sells a CD. The insurance company agrees to hold and grow the lump sum provided by its customer. After a set period of time, the customer gets paid. An annuity creates guaranteed income by growing over a period of time and then paying out either as a lump sum or becoming a steady stream of income returning to you in monthly amounts.
The best use of an annuity is to let the amount grow over a set period of time, typically 3 to 10 years. If allowed to fully mature, the growth is added to the amount paid later. However, let’s say you’ve already hit retirement and have a lump sum you want to turn it into monthly fixed income today. What does that look like?
In essence, you want a portion of your savings paid back to you in monthly amounts to support you in retirement for the rest of your life. This is where a single premium immediate income annuity comes in. An immediate annuity will exchange the cash given to the insurance company into a deferred payment that can start immediately but last for life. The money’s available for monthly payments starting today and this type of annuity can be right for those who search for a service to provide additional income or will not have a pension.
1. How Much Does a $100,000 Immediate Annuity Pay Monthly?
The amount paid by a $100,000 immediate annuity depends on how long it will be paid for and the age of the recipient. The older the recipient, the higher the monthly amount. Additionally, if the annuity is designed to pay out the remaining funds left in the account upon the death of the recipient to living beneficiaries, this will lower the quotes of the amount paid monthly. The amount also changes depending on if the annuity is paid to an individual or issued to an individual plus a spouse.
The good news is that the term on the annuity you purchase will be subject to the rate agreed upon by you and the insurance company. Nothing will be hidden or a surprise because the payout is not touched by market volatility. As an example, a man could expect to receive $525 a month guaranteed for life on a $100,000 immediate annuity. The amount lowers to $490 a month for a woman.
2. How do Immediate Fixed Income Annuities Work?
An annuity is an agreement between you and an insurance company. It can be purchased with pre-tax or post-tax income. The company agrees to pay you back the invested amount plus interest, usually in monthly payments.
This regular income makes it attractive for retirees or individuals about to retire and helps turn savings into lifelong income to live off of. An immediate annuity means that the annuity isn’t given time to grow. There’s no accumulation phase—only a payout phase. There’s less growth on the money before you begin the withdrawal phase. Annuities can’t lose their principal which is why they’re sought as an investment strategy. They’re a safe bet.
3. Are Immediate Annuities a Good Deal?
Immediate annuities take the guesswork out of retirement by providing regular monthly income. Immediate annuities are great for individuals with no pension or immediate income on retirement. Annuities provide certainty. Certainty that few other investment strategies can offer. Immediate annuities require an insurance company you can trust. Be sure to check the annuity companies rating to learn about the quality of the company you’ll be investing with. It’s a good idea, no matter what, to diversify your assets and use the income from an annuity as an additional source of income in retirement rather than the only one.
4. How Much Would an Immediate Annuity Pay?
An immediate annuity from insurance companies pays less than variable or fixed index annuities because it hasn’t been given time to grow. The longer money can grow in any investment strategy, the better. Immediate annuities aren’t given the opportunity to grow before being withdrawn.
Immediate annuity payouts are based on several factors including the age of the receiver—the older, the higher the monthly payout. A five-year difference in age creates less than a 10% difference in monthly payout. An immediate annuity is one of the weaker forms of an annuity, financially speaking, but those wishing to turn savings into a set monthly income find their guarantees worth the trade-off.