Hyers & Associates

Get a Quote »An immediate income annuity is an investment account that begins systematic payments of principal and interest from its inception or a predetermined future date. This process is referred to as an annuitization.

Immediate annuities works very much like guaranteed pension payments as they generate a reliable stream of income for the owner. The monthly payments can be established for a specified period of years or for the lifetime of the annuitant.

Immediate Annuity Income Planning

The times have changed. Very few employers provide guaranteed pensions and the stock market has been extremely volatile over the last decade. In response, consumers have been allocating a portion of their retirement monies to annuity accounts as a means to setup a self funded, reliable pension payment.

These accounts are primarily purchased to provide regular income payments now and in the future.  Annuities are valued for the safety they provide and reliable fixed interest returns. Very few investments provide the stability and peace of mind afforded by fixed, indexed, and immediate annuities.

How Does an Income Annuity Work?

In most cases, the investment will be funded with a lump sum either from a retirement account or other liquid assets contributed by the owner. The payouts will then be determined based on the age, gender, state of residence, and in some cases health of the owner. Payments are usually taken monthly, but can be requested on a quarterly, semi-annual, or annual basis.

There are several ways to annuitize the deposit, thus the terms of the annuity will also determine the systematic payment amounts. Some annuities are setup to make payments for a lifetime while others are only established for a guaranteed period of years. In this way, the owner can determine the payout method that best suits his or her income needs.

What Happens When the Owner Passes Away?

It depends on the type of annuity contract purchased. Most immediate annuities are setup with what is called a period certain. This means the owner has purchased an account that will make payments for a certain period of years.

After the end of the agreed upon number of years, the annuity will have paid out all principal plus interest and the payments will terminate. If the owner passes away before the period certain has been reached, then the remaining payments will continue on to a named beneficiary in the contract - usually a family member.

Lifetime Annuity Investment with a Period Certain

A life annuity with a period certain is another option. This choice provides interest payments for the insured’s lifetime. If death occurs before the period certain has been reached, then the remaining account value will be paid to a named beneficiary. This guarantees a return of principal plus interest to the family of the insured.

For example, if a life annuity with a 20 year period certain is purchased with a lump sum deposit, then the annuity will make payments to the owner or named beneficiaries for a minimum of 20 years. After 20 years, the annuity will continue to make payments to the owner(s) for his or her lifetime. However, in this example, no payments would be made to the beneficiary of the owner(s) once death has occurred and the 20 year period certain has been reached.

Life Annuity with No Period Certain

The most aggressive annuitization method is the life annuity with no period certain. This option will offer the largest systematic payments to the owner, but no guarantees to any beneficiaries at passing. This type of account guarantees payments to the owner(s) only, but no one else. Should the owner reach his or her life expectancy or beyond, he or she will have received much more than was originally contributed to the policy.

Consumers concerned more with meeting income needs and less about family inheritance might select a life annuity to provide the highest possible monthly payment. A life annuity with no period certain is the only type of account that allows the insurance company to keep any remaining funds at passing.

Inflation Protection on Future Income

Several insurance companies offer inflation protection on the future stream of income. If desired, the annuitant can purchase a plan offering a compounding inflation rider - usually 3% or 5%.

This means the future payments will grow by the desired compounding rate each year. However, payments in the first few years will be lower than a traditional plan without an inflation rider.

Still other annuities will increase payments each year based not on a fixed return, but rather an indexed market return. In this case, payments are tied to an index like the S&P 500 and can increase year to year based on the performance of the index. However, unlike a variable annuity, future payments cannot decrease below the contractual guarantee if the chosen index loses value.

Creditor Protection and Structured Payments

In other cases, immediate annuities are purchased to provide creditor protection from a lawsuit or to avoid Medicaid recapture. An immediate annuity can also be funded as part of a structured settlement in order to setup reliable income for an injured party.

Additionally, immediate annuity accounts are often used in conjunction with a structured sale to spread out realized capital gains taxes in large property or investment sales. However, their most common use is simply to provide income during retirement.

Income Strategy Defined

Immediate annuities are most often used for income purposes because of their safety and reliability. The amount of the systematic payment will depend on age, gender, term, and the sum of the initial investment. It is also worth noting that many deferred fixed and equity-indexed annuities can be transferred into immediate annuities after one or more years if desired.

We work with several leading insurance companies to provide competitive annuity product and illustrations. Depending on your needs, we can recommend the appropriate policy type for you and your family.

Please contact us today for more information about immediate annuities. We will provide quotes and illustration from carries offering the highest interest returns on investment.