Stability and safety are important to many seniors, and these are only two of the reasons why immediate annuities are popular investments. A check arrives every month and part of the income is considered a tax-free return of your principal. As long as the annuity company is financially sound, the payments will continue for the life of the contract (annuities are guaranteed by the claims-paying ability of the issuing company).
However, consumers sometimes believe that immediate annuities are illiquid, irreversible investments, and cannot provide for future lifestyle changes. Nonetheless, there are some immediate annuities with options that may add flexibility to your financial plan.
Immediate annuities can possibly include an option that would allow you to receive extra cash at specific anniversary dates. For example, this might be at the 5th, 10th, or 15th anniversary of your investment. Exercising this option will reduce your future payments (the distribution may be fully taxable, so consult with your tax professional).
Suppose you needed money to cover an emergency, like paying for caregivers or a home repair. Some annuity companies will let you take up to six payments at once. You would not, however, receive checks for the following six months (payments may be fully taxable so consult with your tax professional).
You may also have the ability to provide a cash benefit from your immediate annuity to your heirs. This would be a pre-determined percentage, such as 25% or 50% of the amount of your initial investment. Selecting this option will reduce your monthly annuity checks, and may have tax consequences.
Annuities are so varied and there are so many different options provided, it’s essential to speak with a retirement advisorto see a range of products and solutions available.