The word 'annuity' brings to thoughts different meanings for different people. That's because there are different types of annuities designed for diverse purposes. One of these types is immediate annuities, which can provide an immediate stream of annuity income payments over a lifetime or a preset term (e.g. 10 years).
Once immediate annuities are spelled out, you may be pleased to know they are able to act like a second social security check because they can provide lifetime annuity income. If the particular investor has chosen the lifetime payout option, he or she normally pays a single premium for an immediate annuity company, as an example, $100,000 for $1000 monthly for life. In return, the company wants to pay the investor normal and ongoing cash payments forever, or for a lesser amount to proceed over the life of both partners in the case of a married couple. Although many investors choose to acquire monthly annuity income, it is also possible to get quarterly, semi-annual, or annual obligations as well.
Assuming the payments are generally structured over a lifetime, the investor is provided with a lifetime annuity income he or she can't outlive. Such an investment is useful for buyers requiring additional retirement income, pertaining to support of a family, wife or husband in the event the other spouse is in need of nursing-home care and is planning to qualify for Medicaid (immediate annuities can be treated because exempt asset in some states), to get lifetime annuity income to cover long term attention needs, or for paying long lasting care insurance premiums. A portion of every payment is considered a return regarding premium and therefore not after tax to the investor. The remainder is known as interest and will be subject to federal and also state annuity income taxes.
One drawback to these kind of immediate annuities is an early death. When this occurs, the annuity company keeps the actual funds and the annuity income ends. This specific early-death financial risk is sometimes considered a negative feature among a number of investors. However, there is a feasible solution to this concern while some annuity companies will guarantee inheritance of the investment to heirs regarding an early death. The feature is known as a 'refund' option. When this option is taken, the investor receives less annuity income during his lifetime (say 10% less) but is guaranteed that should he die before receiving back at least the premium paid, the heirs will receive the remainder of the premium paid.
Once immediate annuities are spelled out, many people find that some negative thoughts are replaced with favorable opinions. Remember that you would never place your entire net egg into an immediate annuity. But would it be nice to gain a cash cushion with an additional lifetime annuity income supply?
Please note, that immediate annuities are long-term opportunities that are designed for retirement. Annuity income guarantees are subject to the actual claims-paying ability of the issuing company. Because of this, it is very important to consider the monetary standing of the issuing company before you purchase. Such financial ratings are readily available from any annuity agent.