What Are Immediate Annuities?
We are discussing something called single premium immediate annuities (SPIA). In return for one large, lump sum payment, the contract will start payout out a regular income right away. Actually, in some cases, that payment can be deferred. As we learn more about annuities, you find there are lots of choices and variables like that. But for now, consider purchasing your fund with one lump sum payout, and then getting regular payouts as income from that investment.
(Note: We also published this article: Explain Annuities)
A common use of an SPIA is to fund a retirement income from some lump sum payout. This payout may be a retirement distribution from work, or another accumulated investment account. Of course, there are other uses for SPIAs, but retirement income is a very popular example.
Advantages of Immediate Annuities
In exchange for this payment, an insurer will agree to make regular payments for a specified period of time. Example of this time period could be lifetime, joint survivorship (both spouse’s lifetimes), or some number of years (i.e. 10). In genereal, this is a binding contract, but owners may have some exceptions built into the contract. For instance, I have seen nursing home or terminal illness riders which would allow an owner to “break into” the account to withdraw the cash.
How much money will you get paid?
Of course, that depends upon many factors like the investment, rerturn rate, and length of the payout term. In general, the more money that finances the annuity, the more it can pay out, but that is also just common sense. The same is also true of the length of time an owner could get monthly payments.
How Are Returns Set?
Again, you can select a variety of options when you purchase your contract. A set return rate will simply be more like a bank CD where the rate is stipulated in the contract. An indexed rate is different though, and it uses a large market to set rates. One very common example of a market would be to tie rates to the S&P 500 index. During growth years, the fund will earn more money.
Fixed Annuities Can Remove Risk
But one big advantage to fixed annuities is the ability to buy a contract where you are guaranteed not to lose money! That’s right, you can purchase contracts with a guaranteed minimum return, even if the index is tied to a market index.
Tax Advantages of Annuities
Of course, the second major selling point is the tax favored treatment that your investment will have. Even non-tax qualified plans can grow on a tax deferred business. If you have a tax qualified plans, you may not be taxed on your payouts at all.
Learn more: Free Immediate Annuity Quotes
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