What Are the Pros & Cons of an Immediate Annuity?
Retirement has become more challenging, and low monthly incomes have made the situation complicated. To address this concern, people have used immediate annuities to provide additional income during retirement. However, before you decide to invest in this area, you should consider the benefits and drawbacks.
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Features
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Immediate annuities are purchased with what is known as a lump sum; they begin paying a monthly income almost immediately. You have the option of setting the payout frequency at monthly, quarterly, semi-annually or annually.
Predictability
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The biggest advantage of immediate annuities is that you have income predictability. This means that once the payout options are established, you will receive the money within the stated time frame in the annuity contract.
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Lifetime Income
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With an immediate annuity, you can elect to receive income for the rest of your or your spouse's life.
Bankruptcy
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The biggest drawback of an immediate annuity is that the insurance company can go bankrupt. However, it is important to note that all states have a guarantee association that provides coverage up to $100,000.00 to provide some kind of protection against such situations.
Considerations
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Before purchasing any annuity, be sure to carefully read the annuity contract. In some cases, you could have the money tied up for many years. If you need access to the principal during this time, you may have to pay a penalty.
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