If you are preparing for your retirement, buying an immediate annuity might be the best investment for you. This type of annuity has two basic types – the Fixed and Variable annuity.
The immediate annuity is appropriate for you are already close to retirement and you want to get for yourself a regular and stable income. This type of annuity allows you to immediately receive income for a certain period of time or for as long as you live. You can start receiving annuity income immediately after you have given your payment for the annuity.
Immediate Fixed Annuity
In fixed annuities, you are going to be paid a fixed income every month from the date you decide to start receiving money. The rate of return you will receive is fixed and will not change no matter what happens to the economy or to the stock market. Thus, if you are afraid of market downturns, recessions, and economic depressions, the fixed annuity is appropriate for you.
One of the chief advantages of the fixed annuity is tax deferral. Income from a fixed annuity is tax-deferred. The fixed annuity owner’s investment is exempted of any tax while it is still accumulating. Taxes are charged only when the owner, or his/her beneficiaries, decides to withdraw money from the annuity. This feature allows you to make your money grow faster. In addition, you are given control over when to pay your tax. Because you are only charged with tax every time you withdraw from your annuity account, you are in control of when to pay your taxes.
Moreover, taxes can be postponed when the owner of the annuity dies and he/she named his/her spouse as the beneficiary of the annuity account. The turning over of the account is carried out without taxation. Moreover, the spouse (the beneficiary of the original owner of the annuity), can also transfer the annuity to an heir who can have as long as five years of additional tax deferral.
The fixed annuity is a stable investment especially designed for retirement purposes. If you are retiring soon, the immediate fixed annuity is the best choice for you.
The Immediate Variable Annuity
In variable annuities, your money is invested in stocks, mutual funds, and bonds. Thus, the monthly income you receive is dependent on the condition of the economy and the stock market. If the stock market rises, the rate of returns you receive from a variable annuity will increase. On the other hand, if the stock market falls, your annuity rate of returns will decrease. It goes without saying that variable annuities involve greater risk than fixed annuities. However, with greater risk comes a higher possible return. If you do not fear the fluctuations in the stock market, the variable annuity could be a good choice of investment. Just like in fixed annuities, income in variable annuities is tax deferred. You can choose between getting the returns on a short term basis or on a long term basis.
The type of immediate annuity you choose depends on your goals and your priorities. If you are still in the process of accumulating money before you retire, you are more likely to invest in immediate variable annuity. One the other hand, if you have already accumulated enough money that will last from the day you retire to the day you pass away, you are more likely to invest in immediate fixed annuity because it gives you a stable monthly income. Where you put your money is an important decision. Before you decide on the type of annuity to invest in, weigh your priorities, you goals, and all the possibilities.