IMMEDIATE FIXED ANNUITIES

ARE IMMEDIATE FIXED ANNUITIES THE RIGHT INVESTMENT CHOICE FOR YOU?

An immediate annuity is an investment contract sold by an insurance company for a lump sum premium payment that immediately results in an income stream for the purchaser. The minimum purchase amount for immediate annuities is usually $10,000.

Immediate fixed annuities pay a fixed monthly amount for a period of time or life. The immediate annuity rates stay the same for the term of the policy and are guaranteed by the insurance company issuing the immediate fixed annuity. Immediate annuity rates vary from policy to policy and you’ll want to get several immediate annuity quotes before choosing one.

SOME ADVANTAGES OF IMMEDIATE ANNUITIES

• Immediate annuities are often used to shelter assets. Individuals nearing retirement sometimes purchase an immediate annuity to remove funds from their estate that keep them from qualifying for Medicaid.
• Protection from creditors is another reason for purchasing immediate fixed annuities. In most states your immediate fixed annuity cash value is exempt from attachment by creditors.
• An immediate fixed annuity can be a hedge against outliving your resources.
• Unless you purchase an immediate fixed annuity within an IRA or company pension, most of the monthly payment you receive will be tax-free since it’s considered a return of capital. Only the earnings will be taxed.

THE DISADVANTAGES OF IMMEDIATE ANNUITIES

• Immediate annuities are often used to shelter assets. Individuals nearing retirement sometimes purchase an immediate annuity to remove funds from their estate that keep them from qualifying for Medicaid.
• Protection from creditors is another reason for purchasing immediate fixed annuities. In most states your immediate fixed annuity cash value is exempt from attachment by creditors.
• An immediate fixed annuity can be a hedge against outliving your resources.
• Unless you purchase an immediate fixed annuity within an IRA or company pension, most of the monthly payment you receive will be tax-free since it’s considered a return of capital. Only the earnings will be taxed.

WHAT SHOULD YOU DO?

• An immediate fixed annuity will not give you the maximum return on your investment.
• Fixed payments from an immediate annuity can mean a loss of purchasing power over time because the immediate annuity rates stay the same while inflation goes up and the value of the dollar goes down.
• If you choose a “life only” income option within an immediate annuity and you die before you’ve used up your principal, your heirs will receive nothing from your immediate fixed annuities.
• Generally speaking, immediate annuities are irrevocable contracts. Once you purchase the immediate annuity, it is non-refundable and you no longer have access to the funds in your immediate annuity.

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