Layin' It on the Line: What is an immediate annuity?

If you are close to or already in retirement and looking at options to convert your retirement savings to a lifetime income stream, an immediate income annuity might be a solid option.

An immediate annuity can provide a guaranteed income stream that can help fill a gap between a pension and activating your Social Security income. It can also serve as an addition to the part of your retirement income that is guaranteed and becomes part of your retirement foundation.

The annuity is a great way to get guaranteed income in your retirement by providing guarantees of loss of the income stream — even if we experience another economic crisis like 2008-2009!

An immediate annuity may be the perfect addition for those who want both security as well as stability during their golden years.

Important lifetime decisions can cause anxiety and a delay, but once you have identified your time horizon for converting assets to income, an immediate annuity can reduce stress and concerns by providing a guaranteed monthly income stream.

The benefits and disadvantages of an immediate annuity can be a major part of your decision-making process. Millions of people have selected an immediate annuity as a preferred portion of their retirement income; it all depends on your goals and your personal situation.

Benefits of immediate annuities

* If you wish, there is no delay in starting an income stream. You have the option of starting your income immediately or you can delay the income until a future date.

* Immediate annuities are simple. You make the deposit, you receive the income for your desired time period and schedule. Income choices include any time period you wish — it can be a few years or a lifetime; numerous options are available.

* Guaranteed income is backed by the financial strength of the issuing insurance company. Due to state department of insurance regulations, immediate annuities are some of the safest products available.

* There are no fees; what you are quoted is what you get. There should be no fees or expenses charged by the issuing company. If you are considering an immediate annuity, verify that there are no fees and expenses.

* Most immediate annuity contracts provide a minimum option of payments or of a return of premium in the event of death. Always inquire what happens in the event of a premature death of the annuitant. You have many options here; make sure you fully understand them.

Disadvantages of immediate annuities

* Liquidity is a disadvantage. Once the deposit is made and the contract is activated, there is no further access to your original deposit. Your income starts and it stays as income.

* When income is based on the current situation, over time, inflation may cut into the purchase power of an immediate annuity. Options exist to build an immediate annuity by laddering several annuities that may reflect future inflation concerns. Ask your advisor.

Whatever your choice, always make sure your advisor is authorized to provide the information. Oftentimes, a second opinion can make solid sense.

Lyle Boss, a native Utahn, is a member of Syndicated Columnists, a national organization committed to a fully transparent approach to money management. Boss Financial, 955 Chambers St., Suite 250, Ogden, UT 84403. Telephone: 801-475-9400.