Overview
Immediate individual annuities are contracts that allow policyholders to invest a lump sum of money in return for a periodic payout that begins shortly after the investment. This payout may come in two forms: non-variable and variable.
Non-Variable Immediate Annuities
Non-variable immediate annuities offer payouts that are based on a guaranteed interest rate credited to the invested funds. This type of annuity provides a steady, predictable stream of income starting within one year of the contract’s commencement, making it a reliable option for retirement income.
Variable Immediate Annuities
Variable immediate annuities, in contrast, have payouts that fluctuate based on the performance of an underlying investment portfolio selected by the policyholder. The rate of return on these investments directly influences the accumulation and, consequently, the annuity payments. This option suits those who are willing to take on more risk for potentially higher returns.
Key Features
Start of Payouts: Immediate annuities require that payouts begin within 13 months of purchasing the contract, aligning well with retirement planning needs.
Rate of Interest Accumulation:
- Non-Variable: Interest accumulation is based on a guaranteed rate or additional rates that are applied to defined considerations during the contract period.
- Variable: Returns are tied to the performance of selected investment options, which can vary significantly.
Conclusion
When choosing between non-variable and variable immediate annuities, it is important to consider your financial stability, retirement goals, and risk tolerance. Immediate annuities provide a measure of financial certainty and can play a key role in a diversified retirement strategy.
For further details on analysis and comparison of various annuity products, consumers are advised to consult financial advisers or refer to resources such as the SEC’s ‘Introduction to Annuities’ and the Insurance Information Institute.
