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Immediate Payment Annuities


One of the biggest advantages that annuities offer is the ability to make up for a failure to build a sufficient retirement nest-egg over the previous decades. Instead of contributing each month of a working life, you can take a lump sum. You can then take that lump sum and swap it for a regular income. That income can be paid annually, quarterly, or monthly.

For many people an annuity gives a retirement a certain amount of stability. Together with their Social Security income, they can know exactly how much money they’ll receive each month. They can then budget accordingly. The payout period can last for a set period, such as five or ten years. More commonly though, people buy annuities that last them for a lifetime.


That can risk turning an Immediate Payment Annuity into a gamble. If the buyer lives for a long time, they could receive a higher return from that lump sum than they could have done through any other investment. If the buyer dies shortly after buying an annuity, however, the insurance company can keep the rest of the fund. Heirs could find that a relative’s $100,000 savings has turned into a couple of thousand dollars of revenue.

There are solutions. Joint and Survivor annuities continue paying the annuity to a second party, such as a spouse. Other annuities continue to pay to a beneficiary after the death of the buyer for a fixed period. It’s also possible to buy a cash refund annuity that returns a lump sum in the event of the buyer’s premature death.

Each of these extra conditions adds costs to the annuity, though, and reduces its returns.

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