Immediate Annuity Rates Explained
By far the safest, most reliable wealth-management tools, immediate annuities begin paying regular benefits within thirty days of purchase. If circumstances have left you in possession of a significant lump sum, a fixed immediate annuity assures its healthy growth and your secure income.
What is a fixed ”immediate annuity”?
Like all other annuities, when you purchase a “fixed immediate annuity,” you buy an insurance product intended to provide stable, steady income over a long period of time. Only the best, highest rate American insurance companies sell annuities, and they typically invest very conservatively, so that you have assurance of prudent fiscal management.
The “immediate” annuity, however, earns its name by paying-out benefits within thirty days of purchase. Unless you make specific provisions to defer the first payment, the immediate annuity will begin making regular, equal payments at the interval your contract specifies—monthly, quarterly, every six months, or annually. The majority of investors set-up their annuities to pay their entire lifetime and many end-up collecting more than they originally invested.
Unlike other annuities which allow investors to contribute over time, an investor purchases an “immediate” annuity with one substantial lump sum. The annuity then relieves the investor of monitoring markets, speculating on rates of return, and reporting his interest or dividends. Although immediate annuities do not promise the same growth potential as stocks or bonds, they out-perform certificates of deposit and Treasury notes.
The immediate annuity may also confer some tax advantages: If the lump sum comes from an investment already sheltered from taxes, each payment is fully taxable, but the investor gambles he will qualify for a lower income tax rate, because he has substantially reduced his regular monthly earnings. If the lump sum was taxed before investment in the annuity, then the annuity actually will pay back some of the previously taxed principal.
The immediate annuity comes with one major caveat: Once the payments have begun, the annuity contract cannot be revised or canceled.
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Immediate Annuity Rates
Nearly two dozen reputable web sites offer extensive data about rates of return on immediate annuities, because the providers adapt the terms and conditions of the annuity contract to the investor’s age, the length of the return guarantee, and the required minimum investment; some immediate annuities also include first-year bonuses.
All of those sites offer easy immediate annuity rate calculators: enter your data and requirements, and the calculator will show either the best rate available or the range of available rates.
In the first quarter, 2009, the twenty highest rated immediate annuities for men and women aged 65 had an average return rate of 4.7%--consistent with immediate annuity rates’ tendency to outperform other “secure” instruments. All of the plans guaranteed the printed rate for at least seven years; some for up to a decade. The lowest immediate annuity rate came-in at 3.4%, and the highest came-in at 6%. Careful analysis showed no correlation between the minimum investment and the rate of return: immediate annuity rates for the highest minimum premium were right at the median among all plans. Similarly close analysis showed no correlation between duration of the guarantee and the rate of return.
The older the investor is when he or she purchases the immediate annuity, the higher the rate of return the company will guarantee. Insurance companies set the immediate annuity rates differently for men and women, because women still live considerably longer than men. Women earn ½% to ¾% less than men, because the insurance companies expect to continue regular payments to them for 7 to 10 years longer than they will pay men of comparable purchase age. Some states require unisex rate calculations; they, however, remain the exceptions.
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