Explain an Immediate Annuity
An immediate annuity is an insurance product in which you give a lump sum of money to an insurance company or other provider in exchange for guaranteed payments over a specified period of time, usually the rest of your life.
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Function
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Immediate annuity payments usually begin within 30 days of purchase and provide guaranteed monthly income for life, much like a pension.
Features
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Immediate annuity payments will continue no matter how long you live, even if you receive more money than you originally contributed.
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Benefits
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An immediate annuity guarantees you won't outlive your retirement savings. Some annuities will continue payments over your spouse's lifetime if you die first.
Considerations
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Immediate annuities are often purchased with lump sums from retirement plan (401k or IRA) distributions, personal injury or divorce settlements, inheritances or lottery winnings.
Warning
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Once you purchase an immediate annuity, it's unlikely you'll be able to get the principal back, even in an emergency. Annuities generally pay lower rates of interest than other investments.
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