How Immediate Annuities Can Help Your Retirement Planning?

How Immediate Annuities Can Help Your Retirement Planning?

Retirement planning involves investing in such a way that you are assured of a steady stream of income in your golden years. And the best way to ensure that is to buy annuity plans which involve a contract between you and an insurance company. You need to either invest a lump sum amount or pay a series of premiums and in return, the insurance company agrees to pay the sum assured in the form of annuity payments.  The lumpsum payments of your savings allow the insurance provider to start immediate annuity payments allowing you to convert your current retirement savings into future income payments.

What are Immediate Annuities?

An immediate annuity policy is designed to provide the investor with a regular income stream for a specific period in exchange for an initial lump sum investment. And since the annuity income starts immediately after you deposit the money it is called an immediate annuity plan. When you opt for an immediate annuity, you are getting a pension from the lump sum money invested by you.

These plans are quite popular and suitable for people just entering retirement. However, if you have time before you retire, you can choose to go for deferred annuity plans wherein the insurance company gets time to invest your money and earn some good returns on it.

Types of Immediate Annuities

When you choose an immediate annuity plan you have the option to go for variable or fixed return annuities. In the case of fixed annuities, the amount of annuity that you get every month remains the same for the life of the plan. However, in the case of a variable annuity plan, the monthly or quarterly annuity amount is determined by the returns earned on investments made by the insurance company. You get a higher pay out if the investments do well but if the investments do not perform well your annuity amount may decrease. The variable immediate annuity plans are useful if you have the capacity or tolerance to withstand the changes in your monthly income.

Benefits of Immediate Annuities for Retirement Planning

Immediate annuities ensure that the basic goal of retirement planning-ensuring a steady source of income every month is fulfilled. But there are several other benefits when you invest in an immediate annuity plan.

  • Immediate Flow of Income or Liquidity– These plans ensure that your annuity starts immediately and you do not have to run around arranging for funds for even a single month.
  • Simple– Immediate annuity plans are simple to understand and require no monitoring especially when you have chosen a fixed annuity plan. You also do not have to worry about market-related losses in this case.
  • Option to Choose Tenure-You have the option to choose an annuity for a fixed period or your whole life.
  • Customisable– You get to decide how much and how long you get paid besides buying additional features or riders for protection against critical illnesses and accidents. You can use an annuity calculator to find out the amount to be invested for getting a specific amount of annuity.
  • Joint Life Option-You have the flexibility to choose a joint cover for you and your spouse.

An immediate annuity plan is highly useful if you are looking for immediate income and do not have any other source of regular lifetime income.

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