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Immediate Annuity Income Accounts

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Immediate Annuities For Income

An immediate annuity is an insurance contract that begins systematic income payments of principal and interest from inception – or a predetermined future date. This process is referred to as an annuitization.

Immediate annuities work like pensions as they generate a reliable income stream for their owner(s). Income payments can be set up for a specified period of years, a lifetime or both. We work with all carriers and will help you find the products providing the largest income stream to meet your needs.

Establishing An Immediate Annuity Income Account

Annuity Income AccountsTimes have changed – few employers provide guaranteed pensions and the stock market has been highly volatile.

In response, investors are allocating portions of their retirement dollars to annuity accounts in order to set up a guaranteed future income stream. Buying income and investing the difference can offer a stable retirement.

These accounts are primarily used to provide regular income payments now and in the future – and often for the life of the insured(s). Annuities are valued for their safe and insured guaranteed interest returns. Few products offer the stability and peace of mind afforded by fixed, indexed, and immediate annuities.

How Do Annuities Work To Create Income?

In most cases, the annuity will be funded with a lump sum either from a retirement account or another liquid asset. Periodic payments are determined by a few different factors including age, number of insureds, payment schedule, and income needs. They can be tailored in many ways to suit the owner(s) preferences.

There are several ways to annuitize your investment. Most accounts provide flexibility before and during the payment cycle. Some immediate annuities are set up to make payments for a lifetime while others are only established for a guaranteed number of years. Accounts can be created for single or joint owners. Payments can be taken monthly, quarterly, yearly, etc.

Income does not need to begin right away. If desired, payments can start as soon as one month from inception. Some owners postpone income for years to allow for tax-deferred growth and larger payouts. (Owners at or near age 70 1/2 should also account for Required Minimum Distributions if qualified money is invested.)

Investors should also be aware of annuity income riders that can be attached (usually at a cost) to most fixed and indexed annuities. These investments are a little different than what is described above. You can learn more about income riders here.

What Happens To Income And Principal At Death?

It depends on the type of annuity contract purchased. Some annuities continue to make payments to a spouse or beneficiary if the owner dies. Others provide a refund of unused principal to the named beneficiaries. The only contracts that make no further payments at death are Life Only annuities.

Many immediate annuities are established with what is called a “period certain.” This means the account that will make payments for a guaranteed number of years. After the term is up, the annuity will have paid out all principal and interest. If the owner passes away before the period certain was met, then the remaining payments would continue on to the policy’s beneficiary.

A period certain or installment refund option will assure that the entire deposit is paid out either to the owner(s) or the named beneficiaries. The commonly told myth that the insurance company keeps all residual funds at passing is untrue.

Lifetime Income Annuity With A Period Certain

A life annuity with a period certain is most commonly purchased. This option provides interest payments for the life of the owner(s). If death occurs before the period certain has been reached, then the remaining account value is paid to a beneficiary. This guarantees the return of principal and interest while also establishing a lifetime income stream.

For example: If a life annuity with a 20-year period certain is purchased, 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 their lifetimes. In this example, however, no payments would be made to the beneficiaries if death occurs beyond the 20-year period certain.

The most aggressive (and least common) annuitization method is a “life annuity with no period certain” policy. This option will offer the largest systematic payments to the owner, but no guarantees to any beneficiaries at death. These policies guarantee payments to the owner(s) only, but no one else.

Immediate Annuity Accounts With Inflation Protection

Annuities Offering Inflation ProtectionSeveral insurance companies offer inflation protection on the future stream of income. If desired, you can purchase a plan offering an inflation rider – usually 2%-5%. Others grow based on the Consumer Price Index.

Some annuity income riders allow for income growth based on the performance of certain market indexes. Your future payments can and will grow even after income payments have begun.

And once your income level increases, it stays there. It can never go down, only up. These types of income streams are tied to the S&P 500 or other proprietary indexes. They can outpace inflation and help maintain owners’ income for a stable retirement.

Usually the larger the guaranteed growth percentage (5% over 2%), the lower the initial payments. Conversely, if income growth is not guaranteed and tied to a market index or the CPI, then the initial payouts are larger. It’s entirely up to the owners as to which methods best fit their investment needs. We can illustrate all possibilities.

Deferred Income Annuities For Future Income Streams

Not all annuity accounts start income right away. In fact, many will defer income for months or several years in order to allow the principal to grow further and the payments to be larger. These insurance contracts are called deferred income annuities and are often used to create guaranteed income during retirement.

Some will provide flat income streams while others provide increasing income year over year based on inflation metrics or movements in certain indexes. These investments are popular as they allow for market diversification and stable growth. Deferred income annuity accounts serve many purposes based on the safe and insured future income they will provide.

In other cases, fixed annuities are simply used for growth and/or income. Owners might withdraw a portion of their principal and interest, but never annuitize the contract outright. These contracts are popular with savers who like safety and fixed rates of return.

Creditor Protection And Structured Payment Accounts

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 set up reliable income for an injured party.

Additionally, immediate annuity accounts are often used with a structured sale to spread out realized capital gains taxes when valuable property is sold. However, their most common use is simply to provide income during retirement.

Contact Us For Quotes And Illustrations

We work with all highly rated and well-capitalized insurance companies to provide the most competitive income returns and illustrations. Depending on your needs, we can recommend the appropriate policy type for you and your family. Contact us today to learn more.