When you buy an immediate annuity these days, you are not limited to the traditional single life annuity. You have alternatives, if you are willing to accept a smaller payout.
* Straight life. A 65-year-old male can invest $250,000 in an immediate annuity and receive about $20,000 a year as long as he lives. There are no survivor benefits.
* Cash refund. Suppose that man pays $250,000 and dies after receiving $50,000 in payments. His beneficiary would receive the $200,000 shortfall. With this option, annual payments would drop to approximately $19,000.
* Joint life. If that 65-year-old has a 65-year-old wife, they can buy an annuity that will pay as long as either is alive. The annual payout will fall to around $17,000 a year, on a $250,000 investment.
* Single life, inflation indexed. With this version, payments would begin at around $15,000 a year, for a 65-year-old male investing $250,000. However, the payments will increase each year, to keep up with inflation.
