The word 'annuity' brings to mind different meanings for many investors. That's because there are different types of annuities designed for different purposes. One of these is types is immediate annuities, which can provide an immediate stream of cash payments over a lifetime or a defined period of time. Let's look at immediate annuities explained.
Once you have immediate annuities explained, you may be pleased to know they can act like a second social security check because they can provide lifetime income. If the investor has chosen a lifetime payout option, he or she typically pays a single premium to an immediate annuity company. In return, the company agrees to pay the investor regular and ongoing cash payments for life, or for a lesser amount to continue over the life of both spouses. Although many investors choose to receive monthly payments, it is also possible to receive quarterly, semi-annual, or annual payments as well.
Assuming the payments are structured over a lifetime, the investor is provided with a lifetime income he or she cannot outlive. Such an investment is useful for investors requiring additional retirement income, for support of a community spouse in the event the other spouse is in need of nursing-home care and is seeking to qualify for Medicaid (immediate annuities can be treated as exempt asset in some states), for making lifetime payments to cover long term care needs, or for paying long term care insurance premiums. A portion of each payment is considered a return of premium and therefore not taxable to the investor. The remainder is considered interest and will be subject to federal and state income taxes. With this so far brief explanation of immediate annuities, you may already begin to see some useful benefits for yourself.
Our goal is not just to point out the benefits but to have immediate annuities explained -- the pros and cons. One drawback to these immediate annuities is an early death. In such a case, the annuity company keeps the funds and the income ends. This early-death financial risk is sometimes perceived as a negative feature among some investors. However, there is a possible solution to this concern as some annuity companies will guarantee a return of the investment to heirs in the case of an early death. The feature is referred to as a 'refund' provision. Other companies offer 'commutation' which allows the investor to change his mind and recover his initial investment (usually with a surrender charge). But also remember the benefit – if you live to 105, the annuity company keeps paying.
Once you have immediate annuities explained, many people find that some vague negative thoughts are replaced with positive inclinations. Remember that you would never place all of your money into an immediate annuity. But would it be nice to gain security with an additional lifetime annuity income stream?
Please note, that immediate annuities are long-term investments that are designed for retirement purposes. Annuity payments and any other guarantees are subject to the claims-paying ability of the issuing company. For this reason, it is very important to consider the financial standing of the issuing annuity company before you purchase. Therefore, get the safety of annuities explained before you buy.
Annuities explained for the first time can be somewhat confusing, but the second or third time annuities are explained, they start to make sense as a long term investment. Other posts in the blog review features of other types of annuities.