Sometimes referred to as Single Premium Immediate Annuities (SPIA), immediate annuities are purchased with a single lump sum and pay out over a fixed period of time.
Who Uses Immediate Annuities?
Immediate annuities are most common among people who are of retirement age who want to have an annuity that offers them an income without the need for a long-term investment. Unlike their deferred annuity counterparts, these annuities are not given time to mature, so they usually do not grow substantially or earn considerable interest. This system can be beneficial for retirees who do not have time to wait for a long term investment to mature, as they are provided with a steady income through a system backed by an insurance company.
Immediate Annuity Rates
Just like all annuities, immediate annuities can be adjusted to fit your needs insofar as the type of rate that you would prefer to have; SPIAs can be purchased with fixed, variable, and adjustable interest rates.
Fixed rates are standardized and offer the same rate of return, have an agreed upon yield, and occur with structured payments over a set period of time. Variable and adjustable rates, on the other hand, offer the chance of higher returns, but they are less predictable. This unpredictability means that while the rate of return is inconsistent, investors are given a chance to earn more money than they would if they were to only invest with a fixed immediate annuity.
Qualified Immediate Annuities
Terms that are often used when referring to annuities include the concepts of “qualified” or “non-qualified” annuities. These terms refer to the taxability of any given annuity based on whether or not the funds used to build the annuity have faced taxation yet. A qualified annuity is one that is taxable. This type of annuity can be comprised of funds that have not already been taxed, such as:
● 401(k) plans
● Personal IRAs
● Contribution Plans
● Employee Pension Plans
Non-Qualified Immediate Annuities
Immediate annuity plans that are not taxed (except for the interest gained on the contents of the accounts) are called non-qualified annuities. These annuities are tax-exempt because the annuity’s funding has already been taxed. Examples of funding for this type of annuity include:
● Certificates of Deposit
● Money Market Accounts
● Personal savings
What Can You Do With An Annuity?
Immediate annuities are contracts between individuals and an insurance company. When you decide to invest in an annuity, you are bound by the terms of the annuity agreement which will usually cause you to give up access and control of your funds.
You can use annuities to plan for your retirement, receive tax-deferred growth, and purchase a Cost of Living Adjustment (COLA) plan that will let your returns match the ever-changing cost of living. But life changes and the reason someone may set up an annuity may be the same reason they seek access to their money before their agreed upon pay period.
Selling Your Immediate Annuity Payments
Things come up in life that we don’t expect. Sometimes the investments we make don’t line up with the needs or goals that we have fifteen, ten, or even five years later. That’s why we give you the ability to sell your annuity payments for a lump sum of cash.
If you’re in need of money to realize a goal, pay for school, reduce debt, or anything else, we’re here to help. Call Peachtree Financial Solutions today to discuss your options with one of our friendly representatives.