Retirement & Financial Planning Report

For a life-long stream of income, consider buying an immediate annuity. As the name suggests, with an immediate annuity you pay a lump-sum now and begin to receive a regular income stream right away. What’s more, today’s versions offer improvements over earlier models.

Traditionally, immediate annuities paid out fixed amounts with no adjustment for inflation. Moreover, they offered you no access to your money: one day you had a large sum in your retirement account but after annuitizing (choosing an immediate annuity) all you had was a monthly or quarterly payment.

Today, many immediate annuities offer variable payouts, meaning your income can grow if the funds are invested wisely. In addition, you may have liquidity options:

* You might be able to withdraw 20 percent of your assets each year, even after annuitizing.

* You might be able to take out some or even all of your money in the first five years after annuitizing.

* You might have access to a sum of money in case of an emergency, such as a medical crisis.

Payments vary widely so it pays to shop around before buying.

Buying a single-life immediate annuity can give you a substantial income stream but may not provide for anyone else. You could die the next day and the payments from the insurance company will cease.

If this is a concern, consider these alternatives:

Joint-and-survivor annuities. These cover two people (often a married couple), so payouts will continue as long as either is alive. Some joint-and-survivor annuities have a level payout. Others drop the payout, perhaps by 50 percent, after the first death.

Guaranteed annuities. These annuities pay for a minimum period, no matter how long you live.

Suppose, for example, you buy an immediate annuity and specify a five-year period certain. If you live for 30 years, you’ll get 30 years of annuity payments. However, if you die after two years, your beneficiary will receive payments for the remaining three years of the contract.

In any case, though, the monthly payment will be lower than the payment on a single-life annuity.