An immediate annuity pays out income right away, as soon as it is purchased from the annuity issuer. These vehicles, called “payout annuities” or “income annuities,” can be used for example to produce a steady flow of income in retirement while passing to the provider the burden of managing the money used to buy them.
Payouts from immediate annuities may take several forms. Examples include:
* Fixed term. You might receive income for, say, seven years. Subsequently, no more payments will be made.
* Joint life. Payments might go to you or your spouse, as long as either one is alive.
* Life with term certain. There will be life-long payments. In addition, there is a guarantee of, say, 10 years’ worth of payments, no matter what happens.
* Single life. This type of fixed annuity covers one individual’s lifetime, with no guarantees. Payments might stop instantly, if the individual dies right away, or they might go on for decades.
If you want life-long income, a single-life annuity will pay the most cash but it will expire at your death, with nothing for your heirs.
Older purchasers of immediate annuities can get more cash flow because they have shorter life expectancies. In some cases, men will get higher payouts than women of the same age because women tend to live longer. Other immediate annuities use unisex tables.
No matter what your age or gender, it pays to shop around. Payout rates may vary greatly, from one annuity issuer to another, so doing your homework can increase your cash flow substantially.