5 Questions to Ask Before Choosing an Immediate Annuity

Annuities
retired couple walking through the woods in the fall: immediate annuity

You've probably spent the majority of your life working hard to provide a secure future for yourself and your loved ones. Between paying the bills that come like clockwork and funding your children's education, you may have managed to sock away some money for your retirement. But do you worry it's still not enough?

That's where an immediate annuity could help. An immediate annuity could ensure that you have a regular income in retirement and help provide additional assurance you won't outlive your retirement savings. And compared to investments like 401(k)s or 403(b)s — or putting money into the stock market — an immediate annuity comes with more guarantees and protections.

So, ask yourself the following questions to help decide if this type of annuity could be right for your needs.

1. What Is an Immediate Annuity?

With an immediate annuity, you pay one lump sum to access income you can use either immediately or during retirement. Unlike life insurance, you don't have to pay a monthly premium. Instead, you make a single contribution to your insurance carrier, and the company will give you a portion of that money every month as regular income for you and your family.

2. What Are the Benefits?

Aside from providing additional financial security in retirement, immediate annuities have other benefits. Have you recently sold your home at a profit? Have you received an inheritance or a significant cash payout? If so, you may be afraid to put the money into an investment because of the risks that come with the ups and downs of the stock market. But you could consider putting this money into an immediate annuity to help ensure its safety.

Since an immediate annuity is an insurance product, it's protected from default. If your insurance company experiences financial troubles, many states have laws protecting the money you've contributed. The protected amount varies by state, however, so it's important to do your research before signing up.

While an immediate annuity is permanent, the owner of the annuity has no access to the premium, which converts to an income payout stream. The annuity cannot be surrendered and has no cash value or death benefit. Contract terms cannot be changed, including payment amount and frequency, unless commutation is available and elected. Also, an immediate annuity should not be purchased if access to the premium may be needed for things like living expenses or other needs.

3. When Can I Use an Immediate Annuity?

Another key advantage of immediate annuities is pretty obvious — they're immediate. You could access this income right away. You could choose to receive income from an immediate annuity for as long as you like. That could be 10, 15 or 20 years — or the rest of your life.

Withdrawals of taxable amounts from an annuity are subject to ordinary income tax. Also, if the withdrawals are taken before age 59 1/2, they may be subject to a 10 percent penalty from the Internal Revenue Service (IRS).

If you're counting on your retirement savings or Social Security to provide income after you stop working, an immediate annuity could offer an added layer of protection and income flexibility to your portfolio. This financial protection could help you live more comfortably in your later years.

4. What Are the Different Rates?

Immediate annuities have a payout rate, which can either be a fixed amount every month or an amount that gradually increases over time in response to cost-of-living adjustments and inflation. However, this differs according to the policy you choose.

Your payout rate could also vary depending on when you start collecting a monthly income from the annuity and the lump sum you contribute. If you've already hit retirement age or are nearing your 70s, you'll likely have a higher monthly payout because you may not collect as long as someone who begins to receive monthly annuity payments in their late 40s or early 50s. Also, payouts end at the annuity owner's death, unless a certain period or installment refund option is selected.

5. Could It Be Right for You?

An immediate annuity could be a good fit for many people, such as those who are close to retirement age and want additional options to help secure their income and standard of living after they stop working. Also, for those who have already invested some money for retirement and now have more cash on hand — because of a home sale or family inheritance — an immediate annuity could provide additional regular income in retirement.

You shouldn't have to worry about whether you can pay for necessary living expenses or keep a roof over your head in your golden years. After years of sacrifice, you deserve a well-funded and comfortable retirement. Even if you've already invested for retirement or plan to rely on Social Security or a pension, an immediate annuity could offer a way to achieve greater financial peace of mind. And peace of mind is priceless.

IMPORTANT DISCLOSURES

1 Source: LIMRA, a life insurance industry association trade group, January, 2016
2 Source: U.S. Bureau of Labor Statistics (www.bls.gov)

Information provided is general and educational in nature. It is not intended to be, and should not be construed as, legal or tax advice. Western & Southern Financial Group and its member companies (“the Company”) does not provide legal or tax advice. Laws of a specific state or laws relevant to a particular situation may affect the applicability, accuracy, or completeness of this information. Federal and state laws and regulations are complex and are subject to change. The Company makes no warranties with regard to the information or results obtained by its use. The Company disclaims any liability arising out of your use of, or reliance on, the information. Consult an attorney or tax advisor regarding your specific legal or tax situation.

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