How Safe Are Immediate Annuities?
Immediate annuities are income structures created by insurance companies that create a tax-free income stream for your entire lifetime, you and your spouse's lifetime or a certain period. For example, if a 75-year-old man invests $100,000 in an immediate annuity, it may warrant between $600 and $820 of monthly income contingent on the payment option and the existing interest conditions. You can purchase an immediate annuity for as little as $30,000 with most companies.
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Insurance
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Annuities are not FDIC insured and are backed by the financial strength of the insurance company offering them. There are state guaranty laws that protect your assets up to a point (most states being up to $300,000 of aggregate insurance products, according to FSDFinancial.com).
Company Ratings
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Third-party rating companies, such as Moody's and Standard & Poors, rate insurance companies based on financial solvency. Companies with A, AA or AAA are considered more secure investments than those with B or C scales, with D ratings being high risk.
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Time Frame
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The younger you are (and your spouse, if it is based on joint life expectancy), the longer you should be receiving income. Longer time frames increase the risk that there may be a financial crisis with the annuity company or the insurance industry in general.
Warning
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Not all annuities are provided by insurance companies. Charitable annuities may be paid by the charity, so be sure the charity has a long history of paying annuities and is financially stable.
Principal Risk
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When purchasing an annuity, the insurance company is creating an estimated income stream for the rest of your life, which may be 20 or more years. Should you die shortly after starting the immediate annuity, the insurance company retains the premium paid into the annuity and your heirs don't get the difference in most immediate annuity structures.
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