What Is An Immediate Annuity?
A Single Premium Immediate Annuity (sometimes referred to as an "SPIA") may be the right annuity for you if you are looking for payments that begin right away and continue for the rest of your life or for a specified period of time. The annuity is purchased from an insurance company with a single, lump sum amount called a premium.
If you'd like to see an immediate annuity calculation, simply enter your age, income start date, and amount to invest, in our Immediate Annuity Quote Calculator, and click the Get My Quote button. Your quote will appear instantly on the next page.
How does an immediate annuity work?
In return for your lump sum, the insurance company promises to make regular payments to you (or to a payee you specify) for the chosen length of time – most commonly for the remainder of your life, however long that may be.
In most instances, immediate annuity payments are sent to you starting one month after you buy your annuity. When choosing an immediate annuity, you can choose how frequently you receive payments – often referred to as the “mode". While annuity buyers typically choose to receive payments monthly, you may choose quarterly or even yearly instead.
In today’s immediate annuity marketplace, there are a number of ways the annuity can be customized to suit your specific life situation and concerns. In exchange for the guarantee of payments, you give up the right to demand the return of your original premium. Unlike some forms of life insurance or other types of annuities, you are generally unable to revise or cash in the immediate annuity once the 10-day "free look" period has passed.
You can fund your immediate annuity in a number of ways, including:
Cash from a maturing Certificate of Deposit (CD)
Exchanging monies accumulated in a Multi-Year Deferred Annuity account
Proceeds from the sale of stocks, bonds, a home or a business
A lump sum distribution from a tax-qualified defined benefit or 401k, or an IRA account.
Why should I consider buying an Immediate Annuity? What are its advantages to me?
An immediate annuity comes with many important advantages. Here are just a few:
Security — The annuity provides stable lifetime income which can never be outlived or which may be guaranteed for a specified period. This advantage is crucially important to annuitants who may have previously feared outliving their savings.
Simplicity — An annuity is pretty much “get it and forget it.” Once it is set, the only work you are required to do is collect your regular payments. With an immediate annuity, you do not need to watch markets or track interest rates and dividends.
Higher Returns — The interest rates used by insurance companies to calculate immediate annuity income are generally higher than CD or Treasury rates. Since part of the principal is returned with each payment, greater amounts are received than would be provided by interest alone.
Just bought my first SMA and was very happy to have gone through Immediate Annuities.com. I found them in an article in the Wall Street Journal. As a first time buyer, I had a lot of questions. But to their credit, they did a great job answering my questions directly or getting the right answers from the right people when they needed to.
Preferred Tax Treatment — An immediate annuity may be a good strategy to defer taxes until later in your retirement when you may be taxed at a lower rate. This differs from other types of annuities for which the tax burden is “front loaded.”
Safety of Principal — Funds are guaranteed by assets of insurer and not subject to the fluctuations of financial markets.
No sales or administrative charges — Immediate annuities do not have annual account management or maintenance charges. 100% of your premium goes towards your monthly income.
How can you customize an immediate annuity?
You may hear a lifetime immediate annuity called by a number of different names, including "Single Life," "Joint Life," "Life and Period Certain", or "Refund" annuity. Regardless of its name, by ensuring that you will never outlive your income, a life annuity is a powerful retirement planning tool. What’s more, a life only annuity generally offers the highest payout of any lifetime annuity, because it carries the smallest risk for the insurer.
When you shop for an immediate annuity, you will find that one of the key factors in pricing is your age and life expectancy. In a sense, purchasing an immediate annuity is like making a bet with an insurance company about how long you will live. Since the insurer will stop making payments when you die, it is betting that you won't live beyond your life expectancy. On the other hand, if you live longer than predicted, your return may be far greater than estimated.
Immediate annuity coverage can be increased by including a second person ("Joint and Survivor" annuity), by adding a guaranteed period of time ("Period Certain" annuity), or by guaranteeing that payments will continue at least until the original purchase amount has been paid out ("Refund" annuity). This added risk to the insurer is likely to reduce monthly payments by about 5% to 15%, depending on the age of the annuitants and the length of the guarantee period.
You may want to consider an immediate annuity with special options if:
1. You wish to guarantee lifetime income for both yourself and a spouse ("Joint and Survivor" annuity)
2. You want payments to continue for a specified period (e.g. 5 or 10 years or more) to a designated beneficiary ("Certain and Continuous" annuity)
3. You want to ensure that should you die before your initial principal has been distributed, an amount equal to the balance of the deposit continues to a named beneficiary ("Refund" annuity).
What about funding my annuity? Can you explain the difference between qualified and non-qualified funds?
The way your annuity payments are taxed depends upon the source of the funds you use to purchase it.
Qualified Immediate Annuities
When applied to immediate annuities, the term qualified refers to the tax status of the source of funds used for purchasing the annuity. These are premium dollars which until now have "qualified" for IRS exemption from income taxes. The whole payment received each month from a qualified annuity is taxable as income (since income taxes have not yet been paid on these funds). Qualified annuities may either come from corporate-sponsored retirement plans (such as Defined Benefit or Defined Contribution Plans), Lump Sum distributions from such retirement plans, or from such individual retirement arrangements as IRAs, SEPs, and Section 403(b) tax-sheltered annuities, or Section 1035 annuity or life insurance exchanges.
Non-qualified Immediate Annuities
Non-qualified immediate annuities are purchased with monies which have not enjoyed any tax-sheltered status and for which taxes have already been paid. A part of each monthly payment is considered a return of previously taxed principal and therefore excluded from taxation. The amount excluded from taxes is calculated by an Exclusion Ratio, which appears on most annuity quotation sheets. Non-qualified annuities may be purchased by employers for situations such as deferred compensation or supplemental income programs, or by individuals investing their after-tax savings accounts or money market accounts, CD's, proceeds from the sale of a house, business, mutual funds, other investments, or from an inheritance or proceeds from a life insurance settlement.
New options widen appeal of immediate annuities
A common objection to investing in an immediate annuity is the loss of liquidity. The idea of laying out a substantial amount of capital and not being able to access it again, spooks some annuity buyers.
Many insurance companies that issue immediate annuities have come up with a way to assuage this concern. These companies offer a one-time, limited withdrawal or cash advance option. So you can get at some of your principal beyond the scheduled payments to cover emergencies or other issues.
A rider providing a cost of living adjustment ('COLA') is also offered by some companies to take the sting out of rising inflation, a commonly mentioned concern. Annuity buyers can pick from a variety of COLA rates ranging from 1% to 6% per year. A few immediate annuity issuers even peg their payments to the Consumer Price Index ("CPI"). You can read more about COLAs here.
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Comments (81)
Gloria T.
2014-11-18 09:23:51
What happens to the principal after the annuity expires?
Hersh Stern (ImmediateAnnuities.com)
2014-11-18 09:28:37
Hi Gloria,
What happens to the premium (i.e., the amount you paid for your annuity) depends completely on the type of annuity you purchase. There are annuities that return the full principal plus earnings. These are known as fixed interest, multiyear, or index annuities. Keep in mind, if your goal is to withdraw the full principal in the end, then during the life of your annuity the most you can remove each year will be limited to the annuity's earnings.
With an immediate annuity, the type that distributes to you a portion of your principal plus interest each year during your lifetime, in the end all the principal will have been paid out to you, so there is no principal left to pay out. You can protect your beneficiaries even with an immediate annuity by selecting one with a refund option. That way, if you died before all the premium was paid to you while living, the unpaid balance would go to your heirs.
Let me know if you have any more questions by calling me at 800-872-6684 or by posting any comments or questions here.
-Hersh
Dwayne
2015-01-09 22:43:19
What is the minimum amount you can purchase one of these for? Thank you.
Hersh Stern (ImmediateAnnuities.com)
2015-01-14 14:54:44
There is no minimum premium amount that would apply for all insurance companies. Some require at least $10,000 to $25,000 investment. Others require that the modal payment (typically, monthly) be at least $100. You can meet these companies minimums by electing quarterly payments for a minimum of $100 every three months.
A more important consideration might be how much in liquid assets will you have after you buy the annuity? If you're thinking along the lines of a minimal investment, will you retain at least that same amount in cash for emergencies?
-Hersh
Gordon B.
2015-01-14 15:00:17
Can the distribution from a SPIA be considered as part or all of the RMD of an IRA where part of it has been used to fund the SPIA?
The payout of the SPIA would be used to purchase a whole life insurance policy.
Hersh Stern (ImmediateAnnuities.com)
2015-01-14 15:01:00
Hi Gordon,
How you spend the RMD (whether to fund a life insurance policy or for traveling abroad) will not impact the answer to your question.
Generally, an SPIA is considered to satisfy RMDs beginning in the 2nd policy year for life. So you do not need to figure RMDs with respect to the IRA money that you use to buy the annuity. By the same token, your monthly payments received fro the IRA annuity are not applied to satifying the RMDs of your non-annuity IRAs.
You can read more about this here:
https://www.immediateannuities.com/required-minimum-distribution/
-Hersh
Jack
2015-01-16 10:05:03
Can I purchase an immediate annuity by combining money from my IRA with the proceeds from the sale of stocks? I want to fund the annuity with a combination of these two sources.
Hersh Stern (ImmediateAnnuities.com)
2015-01-16 10:25:12
Unfortunately, you cannot comingle IRA (so-called "qualified" money) and "non-qualified" money in the same immediate annuity contract. However, you can buy two separate annuities where the combined premium equals the total amount you were looking to invest. The good news is that immediate annuity pricing is mostly proportional, so you won't lose much monthly income by splitting your premium into two annuities.
Meredith
2015-01-16 10:37:41
I have just been told that the problem with "Immediate" annuities is that they are only guaranteed for life expectancy, so that if one outlives the expectancy--which might very well happen in my case, as we tended to be long-lived in our now largely departed small family--the payments abruptly stop. My understanding, based on your webpage information, was that "life" meant life, and that payments continued until one died, regardless of when that occurred. But obviously I would need to know . . .
Hersh Stern (ImmediateAnnuities.com)
2015-01-16 11:37:00
Life annuities in the U.S. by law pay the recipient for as long as he or she is living. They do not stop if you are alive. It's really that simple. I don't know what you may be hearing but the only annuity that would stop even if you were living would be a "Period Certain Only" annuity not a "Life" annuity.
When you request quotes you'll find explanations telling you how these are administered by the insurance companies.
If you request from us any "Single Life" quote, the page listing those quotes will have the following explanation: "You receive this income for as long as you are living."
This has nothing to do with payments just for life expectancy. These are payments for as long as you are living even if it is till age 150+ or later (LOL).
-Hersh
Michael
2015-01-22 10:45:02
What exactly does it mean by qualified and non qualified premiums? $5,000 and $10,000 premiums???
Hersh Stern (ImmediateAnnuities.com)
2015-01-22 11:20:14
Hi Michael,
The term qualified (when applied to Immediate Annuities) refers to the tax status of the funds used for purchasing the annuity. These are premium dollars which until now have "qualified" for IRS exemption from income taxes. The whole payment received each month from a qualified annuity is taxable as income (since income taxes have not yet been paid on these funds).
Qualified annuities may either come from corporate-sponsored retirement plans (such as Defined Benefit or Defined Contribution Plans), Lump Sum distributions from such retirement plans, or from such individual retirement arrangements as IRAs, SEPs, and Section 403(b) tax-sheltered annuities.
Non-qualified annuities are purchased with monies which have not enjoyed any tax-sheltered status and for which taxes have already been paid. A part of each monthly payment is considered a return of previously taxed premium and therefore excluded from taxation.
The amount excluded from taxes is calculated by an Exclusion Ratio, which appears on most annuity quotation sheets. Nonqualified annuities may be purchased using after-tax savings accounts or money market accounts, CD's, proceeds from the sale of a house, business, mutual funds, other investments, or from an inheritance or proceeds from a life insurance settlement.
-Hersh
Thomas
2015-01-26 09:14:14
I'm considering the purchase of a joint life annuity with 50% to the survivor. I received quotes from different agents and the numbers are different if the 50% payout only goes to the survivor as compared to when the 50% payout goes to either of us when the other person dies. Can you please explain the difference and which type make more sense.
Hersh Stern (ImmediateAnnuities.com)
2015-01-26 09:48:49
Hi Thomas,
You correctly observed there are two forms of reduced joint and survivor annuities and insurance companies administer them differently.
Type 1. Joint & Survivor Reducing to 50% on the Death of the Primary Annuitant only.
With this type of joint life annuity you receive the initial income amount for as long as both of you are living. Upon the death of the primary annuitant only, the secondary annuitant's income is reduced to 50%. If the joint (second annuitant) is the first person to die then there is no reduction in income paid to the primary annuitant.
Type 2. Joint & Survivor Reducing to 50% on Either Death
Here again the initial income amount is paid for as long as both of you are living. However, upon the death of either annuitant, the survivor's income amount is reduced to the 50% level.
The first option is also known as the "ERISA" form of joint annuity since it was mandated under the Employee Retirement Income Security Act of 1974. Employers of defined benefit plans are required to offer this joint life annuity option to their retirees because the annuity originates from the retiree's service to his or her company. So the law was written to protect the employee in the event his or her spouse died first, so that the original income level would not be reduced.
There is a difference in cost between these two options. For example, if you asked an insurance company how much would it cost to buy a $500 a month lifetime income under each option, the 2nd type, which reduces on either death, would be cheaper. The reason is that with a "reducing on either death" annuity there is a greater probability that the reduction will occur sooner seeing as the reduction happens when either of you dies. Those are greater odds for a reduction than in the first annuity option where a reduction in income only happens when the primary annuitant dies but never when the second annuitant dies. So with this option it's less likely for the cut to happen.
If you've been able to follow me so far you know the company actuaries would understand this, too. So they make sure to pay you a smaller starting income under the first option because they expect you to receive that higher initial amount for a longer period of time. There, now you can sit for your advanced actuary's exam. LOL
-Hersh
Richard
2015-02-02 14:26:02
Can a LLC purchase an immediate annuity for a manager?
Hersh Stern (ImmediateAnnuities.com)
2015-02-02 14:53:01
Hi Richard,
Yes, an LLC can buy an immediate annuity and either retain ownership or distribute ownership to an individual. There are tax ramifications for each approach.
Briefly, if the LLC retains ownership and only the monthly payments go to the annuitant, then the LLC receives a Form 1099 (reporting the income to the IRS) at the end of the year and can issue a "wash" 1099 to the annuitant under nominee income rules. In this case the individual is generally not taxed for receipt of the value of the whole annuity (i.e., constructive receipt of the premium paid for the annuity). However, since the LLC remains the owner, the payments could be redirected away from the annuitant to someone else down the road. So the annuitant is not protected from that possibility.
The alternative approach would be for the LLC to pay the premium up front and then transfer ownership of the annuity to the individual. That would likely trigger constructive receipt and the annuitant would owe income taxes on the full value of the annuity in the year he or she "receives" it. (Of course, the LLC could also "pre-pay" the taxes by grossing up its annuity value above what is owed to the individual.)
Best to consult a tax attorney about these matters. There may be ways to set this up in a trust to avoid or delay taxes.
Hersh
Janet
2015-02-06 14:32:20
My mother is recently widowed. We are looking to buy an annuity that will provide income and shelter as much as possible of her assets, in case she needs to enter a nursing home in the future. What would be the best type of annuity and the best way to set it up?
Hersh Stern (ImmediateAnnuities.com)
2015-02-06 14:57:19
Hi Janet-
I would love to help you. In many states an annuity can help your mother maintain eligibility for Medicaid. However, Medicaid laws prohibit me from advising you how to go about that. May I suggest you first consult with an attorney who practices elder law and knows the Medicaid legibility laws in your mother's state of residence.
Then if your attorney advises you to go ahead with the annuity, contact me again and I would be happy to help you. But I'm not permitted to advise you to take that action. And again, yes, there are many states where an annuity can help, but the purchase should be directed by your attorney.
I hope I've answered your question to your satisfaction.
-Hersh
Brian
2015-02-07 11:58:03
I just stumbled upon your website.
We are currently working with a CFP for our retirement planning.
Thank you for your website & sharing your knowledge.
June
2015-03-23 12:49:30
On these immediate annuities, what is the APY? I'm comparing annuities vs. CD's.
Hersh Stern (ImmediateAnnuities.com)
2015-03-23 12:57:11
Hi June-
You wrote that you were comparing immediate annuity rates to CD's.
Immediate annuities cannot be compared with CD's because these two financial products work very differently.
With a CD you give your $30,000 to the bank which the bank holds onto for the whole period and credits you annual interest on the $30,000.
With an immediate annuity, you give the insurance $30,000 and the company immediately starts to give you that $30,000 back each month.
So over the term of the annuity the company never had the $30,000 to invest itself. All the insurance company had was a dwindling balance that started at $30,000 but reduced to $0 by the end of the term. For this reason there is no APY that applies to an immediate annuity.
Based on your question I'm wondering if you might be better served by comparing CD rates to the rates for a type of annuity that is much more like a CD. That type of annuity is called a "deferred" annuity (not an "immediate" annuity).
Let's start with a list of today's top deferred annuity rates:
https://www.immediateannuities.com/deferred-annuities/
You'll find:
a 10 year deferred annuity pays you 3.50% a year
5 year deferred annuity pays you 3.00% a year
So these deferred annuity rates are VERY competitive when compared to today's bank CD rates. And a deferred annuity works much more like a CD than does an immediate annuity.
HOW DOES A DEFERRED ANNUITY WORK?
A deferred annuity returns your full principal back to you at the end of the 5 or 10 years. With an immediate annuity some of your principal is being returned to you with each month's payment. So the annuity expires empty at the end of the 5 or 10 years.
With a deferred annuity you can also request your interest be paid to you each month. That interest-only payment will be less than the amount you would receive from an immediate annuity. That's because with an immediate annuity you are not only getting back some interest but a large portion of each month's payment is also the return of your original principal.
Also, if you buy a deferred annuity and you need to get at your principal during the term, you can withdraw it but you will pay an early surrender fee and other penalties.
If you don't need to withdraw any interest from your deferred annuity your account will grow on a tax-deferred basis. That's an important tax advantage over a bank CD. With a CD, your bank will always report your earned interest each year to the IRS and you will owe income tax on that interest even if you didn't withdraw from your CD. Not so with an annuity. The insurance company does not report any earned interest to the IRS until it is withdrawn from the account.
I hope I've answered your questions to your satisfaction.
-Hersh
Martin
2015-03-31 12:46:16
My wife recently retired. Her company's pension plan was managed by MetLife. She just received a letter from Met saying her company bought her an annuity that is a "Single Premium Immediate Life Annuity with Certain Period 10 Years." Do this mean the policy ends at 10 years? What does this mean?
Hersh Stern (ImmediateAnnuities.com)
2015-03-31 12:53:19
Hi Martin-
Your wife is the owner and annuitant of an "immediate annuity" contract. The majority of immediate annuities are set up to makes payments in one of the following four ways. Let's explore which description best fits your wife's new annuity:
1. Single Life Only or Joint Life Only Annuity with No Refund.
With this type of annuity the insurance company is guaranteeing payments for as long as one or both of the annuitants are living. The annuity payments would stop on the passing of the (last) annuitant.
As an aside, the age of the annuitant(s) is a key factor in determining the monthly income you receive. A younger buyer would receive less income than an older buyer given the same premium paid. That's because the total number of payments received is contingent on the annuitant's life expectancy. Since a younger person is expected to live for more years than an older person the insurance company reduces the amount of each payment to offset the length of the expect payment period.
2. Period Certain (or Term Certain) Annuity.
Here payments are guaranteed for only a certain (limited) number of years (without regard to whether the annuitant is living or not). In this case, if the annuitant passed away before the end of the specified number of years the payments would continue to the beneficiaries until the end of the term. Note, the annuitant's age has no impact on how this type of annuity would be priced by the insurance company. A 40 year old who buys a 10 Year Period Certain annuity would receive the same monthly income amount as an 80 year old who bought the same annuity. Since the number of payments is not contingent on the annuitant's life expectancy.
3. Single Life or Joint Life Annuity with Certain Period.
This type of annuity makes payments for as long as one or both of the annuitants are living, but for NO LESS THAN (i.e., a minimum of) a certain number of years.
This third type combines types 1 and 2 above. Payments are made for at least the length of the specified period. If the annuitant(s) passed away during the specified period then payments continue to the beneficiaries until the end of the term. Payments would stop then. However, because this is essentially a life annuity (with a guarantee of payments if the annuitant(s) passed away "too soon") at the end of the period, if one or both annuitants is still living, payments would continue to be made to them. Like type 1 above, payments would only end on the passing of the last annuitant (after the certain period). Sometimes this type is referred to as a Certain and Continuous annuity.
4. Single Life or Joint Life Annuity with Refund.
Similar to type 3, payments are guaranteed for as long as one or both of the annuitants are living. If, however, the annuitant(s) passed away before the amount of the original premium had been paid back to them while living, the insurance company would pay the remainder of that original premium to the beneficiaries. These beneficiary payments could be be set up as installment payments over time or as a single lump sum payment.
To recap, based on the above four annuity definitions it appears your wife received a type 3 annuity. Payments will be made to her for her lifetime with a promise that if she should die during the first 10 years, payments would continue to her beneficiaries until the end of the 10th year.
I suggest you also call MetLife to confirm this interpretation.
Take good care.
Hersh
Ida
2015-04-28 16:18:17
I should be getting some money from my husband's pension after our divorce is finalize. I understand I would have to pay taxes unless I roll it over to an IRA. I do need the money but don't want to pay that much in taxes. If I choose to annuitize the IRA do I still have to pay taxes and how much monthly withdrawal on lets say $100,000 would I be able to get?
Hersh Stern (ImmediateAnnuities.com)
2015-04-28 16:21:20
Hi Ida-
Using your term "annuitize" I'll address your question. If you buy a so-called immediate annuity which starts making payments to you right away, the transfer from the pension or IRA into this type of annuity would be tax-free, because the annuity would be set up by the insurance company to be a "replacement" IRA. The monthly income you would receive, however, would be fully taxable.
You asked about the amount of money you could receive each month. The amount you can withdraw monthly from an annuity depends on the type of annuity you buy. If it's an immediate annuity, then the insurance company will distribute to you a portion of your principal along with some interest each month. That will be a much larger payment than if, say, you bought the type of annuity which allowed you to withdraw the earnings and leave your principal to grow (so it's would be available to your heirs).
Additionally, the amount you can withdraw would depend on your age and the payment options you elected.
If this all sounds complicated, call us at 800-872-6684. We'd be happy to help. I promise they'll be no sales talk.
Hersh
Steve
2015-05-06 13:53:29
Do states have guarantee agencies and what are the coverage amounts? Also, is it better to divide your premium into several amounts for safety in several companies?
Hersh Stern (ImmediateAnnuities.com)
2015-05-06 13:54:33
Hi Steve-
Yes, every state has a guarantee agency and splitting your premium is a good idea, in my opinion.
You can read a lot more about both topics here:
https://www.immediateannuities.com/state-guaranty-associations/
Hersh
Donald
2015-05-12 08:16:10
I have money I put in an after tax IRA. If I purchase an annuity transferring my IRA would such a transfer result in the monthly annuity money being taxed like a non-qualified purchase, using the exclusion ratio formula?
Hersh Stern (ImmediateAnnuities.com)
2015-05-12 08:19:28
Hi Donald,
If your IRA is a non-deductible IRA, meaning, you contributed after-tax money and you did not take the annual deduction from your income tax filing for contributing to an IRA, then I agree with you...your annuity would be treated as non-qualified and would be taxed using the exclusion ratio formula. You won't pay income tax on the total monthly annuity check you get, only on the not-yet-taxed earnings portion. Your "cost basis" (amount transferred from the after-tax IRA) would be received tax-free.
-Hersh
Fred
2015-05-13 12:59:02
Can the owner of a SPIA be a trust and can the annuitant be the beneficiary of the trust?
Hersh Stern (ImmediateAnnuities.com)
2015-05-13 14:59:03
Hi Fred,
Yes, a trust can purchase and own an immediate annuity and the beneficiary of a trust can also be an annuitant (the "measured life").
Generally, most insurance companies, in this setup, would send the monthly payments to the owner (i.e., the trust) unless directed by the trustee to send the payments to the annuitant (who might also be the beneficiary of the trust). Keep in mind that even when a company sends payment to the annuitant it will send the annual Form 1099R to the owner (the trust), not to the annuitant. The trust would need to issue its own "wash" 1099 to the annuitant.
Some insurance companies also permit directing SPIA payments to a third-party payee, for example, to another insurance company for the purpose of paying premiums on a life insurance policy or LTC policy.
-Hersh
Wes
2015-05-21 08:03:59
If I own an annuity, and the stock market takes a huge, huge dive, how will that effect my annuity?
Hersh Stern (ImmediateAnnuities.com)
2015-05-21 08:08:05
Hi Wes,
The type of annuity you are considering, called an immediate annuity, is not effected by stock market volatility. Your monthly income will neither go up nor down with changes in stock prices.
A related question you might ask is how will a drop in the stock market impact the insurance company that is promising to pay me income for the next 20 to 25 years?
My best answer is that the stock market ups and downs should not directly impact your company's ability to pay its obligations. That's true because life insurance companies typically invest their money in bonds, mortgages, and real estate, not in stocks. In fact, less than 3% of the total insurance industry's assets are in stock equities.
However, when a stock market swoon is accompanied by a weak economy and contracting business activity, then all types of businesses are effected, including insurance companies.
The good news is that during a recession, interest rates tend to drop which causes the value of the bonds that insurance companies hold to increase. This explains why a few dozen insurance companies have survived through the civil war and two world wars, the Great Depression, and other economic calamities.
-Hersh Stern
Mike
2015-09-08 09:58:20
I'm thinking about buying an Annuity with my pension lump sum. If I would find myself in a Nursing Home and in a spend down situation in a few years would the Annuity income be exempt?
Hersh Stern (ImmediateAnnuities.com)
2015-09-08 09:59:02
Hi Mike-
From the perspective of the insurance company whether you were living at home or in a nursing home, payments would continue because that's the company's obligation no matter where you are living.
I think your question is really about your state's Healthcare Financing administration or Medicaid department. Will the state garnish your annuity checks if it is paying for the cost of your nursing home care?
Generally, the answer is yes. But, Medicaid laws are very nuanced and every state has its own peculiarities about how these regs are enforced. That's why your question would be better answered by an attorney who has an "elder law" practice.
A so-called elder law attorney will usually be able to help you design a strategy that maximizes the so-called "community" spouse's income.
Sounds like you should speak with an attorney before taking any steps regarding the annuity.
Hersh
Ola
2015-09-14 12:47:44
Does an immediate annuity guarantee the principal fully?
Hersh Stern (ImmediateAnnuities.com)
2015-09-14 12:48:43
Hi Ola-
When you buy an immediate annuity you irrevocably turn over the principal to the insurance company. In other words, the principal (aka "premium") is not "guaranteed" to you since it belongs to the company. You cannot withdraw the principal at your discretion.
Essentially when you buy an immediate annuity you are buying the insurance company's promise or obligation to pay you the stated amount for the term listed in the contract (e.g., for your lifetime or for a certain number of years). That's what your principal pays for: the company's promise to you.
It's true that you can add a provision to an immediate annuity which says the portion of principal that isn't paid to you while you are living should be paid to your beneficiaries after you died. Maybe in that sense you can say the principal is guaranteed. Is that what you had in mind?
Hersh
Chuck
2015-09-23 07:45:04
Can I buy a joint {2 person annuity} with lifetime benefits for both persons using qualified funds?
Hersh Stern (ImmediateAnnuities.com)
2015-09-23 07:48:27
HI Chuck-
Yes, the IRS rules have always permitted you to buy a joint life annuity covering yourself and an opposite-gender spouse with IRA or 401k money that is in your name. Conversely, your spouse can also buy a Joint life annuity covering the two of you with her IRA or 401k money.
You cannot, however, combine your IRA and her IRA monies and buy one larger joint life annuity. The IRS requires that the original IRA or 401k account owner continue as the sole owner of the joint annuity even though you can add your spouse as a joint ANNUITANT. You just can't add the other person as a joint OWNER.
Regarding same-gender married couples -- The insurance industry has for many years been issuing same-gender joint life annuities for purchase with non-qualified (i.e., non-IRA) money. The rules for IRA monies were different.
However, since the 2014 LBGT rulings in U.S. v. Windsor and Obergefell v. Hodges, the same federal pension rules now apply to all married couples, whether they are same-gender or opposite-gender. So all spouses are now covered under the same survivor benefit rules for defined benefit and defined contribution plans. For example, a same-gender spouse of an employee who has a defined benefit plan will now benefit from his QPSA and QJSA pension coverage once only offered to an opposite-gender spouse.
For this reason, I believe the rules regarding IRA and 401k immediate annuities should now also be the same for both same- and opposite-gender couples. Best, of course, for a same-gender couple to get an opinion from a CPA or tax attorney before buying a joint life IRA annuity.
Hersh
Becky
2015-10-26 14:53:34
Can you make a cash withdrawal from a immediate annuity?
Hersh Stern (ImmediateAnnuities.com)
2015-10-26 14:54:31
Hi Becky-
Many insurance companies offer a "liquidity" or "cash advance" feature in their immediate annuity contracts that have a guaranteed payment option. But liquidity is rarely offered with annuities which are for your "life only" and that do not have a guaranteed payment period.
An example of an annuity with a liquidity feature would be a "25 Year Period Certain" immediate annuity. If you bought this type of annuity and then decided to take a full withdrawal after 5 years, you might be able to get an advance on the remaining 20 years of guaranteed payments. Some companies will calculate the "present value" of those remaining 20 years and pay you that amount. This is sometimes also referred to as the "commuted value" of your annuity.
However, I consider it very unwise to purchase an immediate annuity with the idea of taking a cash withdrawal from it. That's because the cash withdrawal amount is usually deeply discounted from the nominal value of the payments.
Hersh
William
2015-11-24 07:29:21
This quarter our investments lost $15K! At this rate, our savings will be gone in 11 quarters! How safe is an immediate-pay annuity?
Hersh Stern (ImmediateAnnuities.com)
2015-11-24 07:30:21
Hi William-
First, it's important to know that an immediate annuity is not an investment account. There is no cash balance or cash value. You cannot cancel an immediate annuity and get the balance of your money back. (There are annuities which can be cancelled. But those are structured differently than an immediate annuity.)
Regarding the safety of an immediate annuity -
An immediate annuity is issued by an insurance company. It's "safety" would be a reflection of the financial strength of the issuing company. The more surplus and reserves the company holds and the better its investments and actuarial risks are managed, the stronger the company is considered to be by the rating services.
Annuities are obligations of insurance companies, not banks. Annuities are therefore not covered by FDIC.
There is some default coverage provided for annuities by the state guarantee associations (SGAs). You can read more about the SGAs at the following link:
https://www.immediateannuities.com/state-guaranty-associations/
Hersh
Becky
2015-12-07 14:31:42
My father is 93 and has a $100,000 life insurance policy he purchased in 1952. I am 67. He has a chronic illness and his doctors say he's going to pass away in a year. At that time I want to invest the life insurance in an immediate annuity. How much income will I get? Thanks.
Hersh Stern (ImmediateAnnuities.com)
2015-12-07 14:32:38
Hi Becky-
Regarding an annuity you might be purchasing a year or two from now -- It's impossible to know exactly how much monthly income your $100k will buy you at that time.
That's because the fixed amount of income you receive from a $100k annuity is based on your age and interest rates in effect when you sign up and pay the premium to the insurance company. Only then is your monthly income amount locked in.
In the interim, know that the income amounts you see at our web site are hypothetical for your situation. These amounts fluctuate weekly with changes in underlying interest rates and as you get older.
My best suggestion is to continue your research and keep learning more about these annuities. Also, periodically visit our web site and request the free online quotes as you did this morning. That way you will be able to track what's happening to the income amount you anticipate receiving down the road.
Hersh
Stan
2016-01-07 11:51:28
I'm a 68 year old and my wife is 66 years old. I would like to invest in a joint life payment annuity. I would like to have the highest paying income (gap filler) and still have some equity value for our children if we both die. Is there an annuity that you would recommend?
Hersh Stern (ImmediateAnnuities.com)
2016-01-07 11:53:00
Hi Stan-
Based on your description, you could either purchase a single premium immediate annuity with a cash refund option or a fixed index annuity with an income rider. If you're looking to start your monthly payments within a few months, the immediate annuity will pay you more income than the index annuity.
I am sending you a detailed comparison of these two options. The highest immediate annuity quote is $633/month versus $542/month for the index annuity, even after including the 10% premium bonus from the index annuity!
Generally, an index annuity's income is more competitive only when you delay the start of payments for five or more years. But that's not what you had in mind.
I hope you find the comparison helpful.
Hersh
Neldon
2016-01-14 08:50:09
I am interested in a annuity that will pay me the full amount at the end of the time period. I am not interested in monthly income.
Hersh Stern (ImmediateAnnuities.com)
2016-01-14 08:52:25
Hi Neldon-
You can find the type of annuity you described here:
https://www.immediateannuities.com/deferred-annuities/
These are interest-bearing annuities. You select upfront to lock in your premium from 3 to 10 years. At the end of the term you have a 30-day window during which you can withdraw your full initial premium plus all earned interest without any penalties. These are also called multiyear guaranteed annuities or MYGAs.
Hersh
Ron
2016-02-03 13:23:35
If I move monies from a nonqualified annuity to create an immediate pay annuity will I pay tax when I move it or as I receive the payments from the immediate annuity?
Hersh Stern (ImmediateAnnuities.com)
2016-02-03 13:29:25
Hi Ron -
If you follow the "1035 Exchange" guidelines, you'll be able to move your account values without triggering a tax liability. Income taxes then become due only when you receive each month's payment.
I've written a detailed article about this topic which I hope you'll find informative. You can read it at this link:
https://www.immediateannuities.com/1035-annuity-exchanges/
Hersh
Steven
2016-02-08 12:09:57
Does the income from an immediate annuity get counted towards the Required Minimum Distribution when the payee turns 70 1/2?
Hersh Stern (ImmediateAnnuities.com)
2016-02-08 12:10:33
Hi Steven-
When you buy an immediate annuity the premium "automatically" satisfies RMDs for life. That means, you no longer combine the immediate annuity premium with the end-year values your other IRA or 401k accounts (if you have any) when calculating RMDs.
I've written a detailed article about this topic with examples, which I hope you'll find informative. You can read it at this link:
https://www.immediateannuities.com/required-minimum-distribution/
-Hersh
John
2016-02-09 14:20:48
Hi, I would like to know what happens if I might have to enter a nursing home and have the joint payment option. Would the account have to be surrendered or would the nursing home claim my payment until I passed and then it would revert to my wife for the remainder of her lifetime?
Hersh Stern (ImmediateAnnuities.com)
2016-02-09 14:21:26
Hi John-
An immediate annuity is not an "account" which can be surrendered. In fact, an insurance company is not obligated to cash out an immediate annuity, not even if you request it. So a nursing home won't be able to obtain it's underlying values.
What typically happens in your situation is the family agrees to give the care facility the monthly payments (as they are received) for as long as the member is a resident. Afterwards, the annuity income is kept by the survivor spouse.
Hersh
Robert
2016-02-09 14:24:45
I heard some annuities can be exempted from consideration as a resource when seeking approval of a Medicaid benefit. If this is true, what kind of annuity can be exempted from the resource guidelines? and how does it work ? Thank you so much.
Hersh Stern (ImmediateAnnuities.com)
2016-02-09 14:25:50
Hi Robert-
You are referring to what we call a "Medicaid" or "impoverishment-type" annuity. Typically, it's an annuity with a period certain only payment option. It's important to know that while Medicaid is a federal program, it's administered at the state level. So if you're wondering whether you should buy this type of annuity for your financial situation, I highly recommend that you first consult with an attorney who practices elder law in your state. Only if the attorney suggests that it's a good idea in your case, contact me again and we can look at this in more detail.
Hersh
John
2016-03-22 08:22:56
I'm buying an immediate annuity. What if the financial institution that is issuing the annuity at some time in the future decides to raise their operating expenses from 1% to 2%. Can they take that out of my annuity payout. Is that possible?
Hersh Stern (ImmediateAnnuities.com)
2016-03-22 08:24:16
Hi John,
You're asking about annual fees. Immediate annuities do not charge annual fees. The kind of annual fees you mentioned generally apply to so-called "variable" annuities where your income is based on stock market performance.
With an "immediate" annuity the amount of income you sign up for is paid to you for your lifetime. The insurance companies are able to guarantee these payments regardless of their internal costs or profitability because they are able to project their costs ahead of time, so they build those costs into their quotes from the get-go. The bottom line is that with an "immediate" annuity the income amounts you see at our web site already take into account all future expenses, so the quoted income is fixed and guaranteed for your lifetime.
Hersh
Sabine
2018-11-30 09:17:19
How often is the COLA re-adjusted and when does it take effect? Social Security announced an increase of 2.85% for the year 2019. Is this increase reflected in the quote I just received? or will it be added next year (2019)?
Hersh Stern (ImmediateAnnuities.com)
2018-11-30 09:20:16
I looked up the quotes you received. They were for a 2% COLA. This is not tied to the Social Security increases. It would be a flat 2% increase annually on the contract anniversary date. So, if your contract date was 01/01/2019 your first increase would be on 01/01/2020.
There is one company, Principal, that offers an increase tied to the CPI-U. I've gone ahead and emailed their CPI quote to you. The CPI based annuity would also increase on the contract anniversary.
Rick
2019-05-21 13:24:33
How is the principal payment being paid monthly calculated on an immediate annuity? If I know this I would be able to possibly not spend the principal portion of the monthly payment to preserve the principal!
Hersh Stern (ImmediateAnnuities.com)
2019-05-21 13:25:19
Hi Rick,
Unfortunately, this is not possible with an immediate annuity. However, deferred annuities will allow you to withdraw your interest and keep your principal intact. Here is a link to our currently available rates:
https://www.immediateannuities.com/deferred-annuities/
From that website, you will be able to view brochures and requests quotes for individual annuities.
-Hersh
Abraham G.
2022-05-15 13:02:37
I am under age 59 1/2. If I but an immediate annuity and start receiving payments a month from now, is that subject to the 10% penalty? This is money that I have in a savings account now, not in a retirement account.
Thank you.
Kyle (ImmediateAnnuities.com)
2022-05-16 08:50:52
Hi Abraham,
Thank you for reaching out!
The answer to your question is NO. There will be no IRS 10% tax penalty in this scenario.
- Kyle
Tom B.
2023-01-27 16:55:42
The client wishes to provide his 22-year-old daughter with a fixed guaranteed income for a 10-year period. He wants to purchase a fixed-period immediate annuity that would provide the income he wants her to receive.
She would pay the income tax on the income but does she also have to pay a 10% penalty because she is under age 59 1/2 or is there an exception to the rule?
Kyle
2023-01-30 11:07:31
Hi Tom,
Thank you for reaching out!
It sounds like you're describing a "10 Year Period Certain" immediate annuity. This type of annuity would not have a pre-59 1/2 tax penalty.
Please feel free to reach out with any additional questions. we'll be very happy to help.
Best regards,
Kyle
Frank B.
2023-04-25 15:34:24
how can i find out the quote for various such 10 yr period certain
Kyle
2023-04-26 11:28:11
Hi Frank,
Thank you for reaching out!
You can run a 10-year period certain quote comparison by using the calculator on our homepage: https://www.immediateannuities.com/
When looking at the estimates on the left side of your page (step 1), just select "10 Year Period Certain" from the list.
Please give us a call at (800) 872-6684 if you have any additional questions.
Best regards,
Kyle
Herb
2023-04-28 21:57:11
Will an immediate annuity with a 3% COLA and 10 year certain purchased from a qualified IRA satisfy all of the RMD requirements later if I purchase it now at age 69?
Kyle
2023-05-03 16:33:51
Hi Herb,
Yes. If you're able to obtain quotes then they are in compliance with the IRS for RMD-purposes. I would recommend using our calculator to run a quote comparison:
https://www.immediateannuities.com/
I ran a quick comparison based on your scenario and a full slate of quotes was returned. You shouldn't have any issues at age 69.
Please let us know if there's anything else we can do to help!
- Kyle
Richard W.
2023-05-07 19:07:35
In a few years from now, I intend to buy an immediate annuity by selling the investments I have in my Roth IRA. I will be taxed on the monthly income. Is this an unusual situation?
Kyle
2023-05-08 13:00:35
Hi Richard,
Thank you for reaching out.
If you are using Roth IRA monies to fund your annuity, the monthly payments should be tax-free permanently (as long as your Roth IRA is at least 5 years old). The annuity will be issued as a Roth IRA, and the payments will be tax-free distributions.
If you have remaining questions, please give us a call on our toll-free number, (800) 872-6684.
Best regards,
Kyle
John G.
2023-06-13 12:14:07
What is the least amount paid for an SPIA?
Kyle
2023-06-14 10:00:44
Hi John,
Thank you for reaching out.
The minimum premium amount will vary from company-to-company, but it's usually around $20,000. Currently, our agency is accepting applications of $30,000 and greater.
Best regards,
Kyle
Fulu S.
2023-09-01 16:37:44
I am 80 years old and plan to buy an annuity to generate a life-time guaranteed monthly income to prepare for possible future living costs at an assisted living facility in 3 or 5 years (I do not know when, honestly). I do not need money now. What will be the best choice you would suggest?
Meanwhile, I stumbled upon "Fidelity Immediate Fixed Income Annuity" (https://www.fidelity.com/annuities/overview). How do you feel about this product?
Thank you very much
Kyle
2023-09-06 12:33:46
Hi Fulu,
Thank you for reaching out!
Based on what you've stated, it sounds like a deferred income annuity (DIA) would be the best fit. This would be an annuity that you purchase now, for income to begin in the future (more than one year from now). Most companies require that the income start by age 85, but we have a few that will let you start as late as age 90.
You can read more about these annuities here: https://www.immediateannuities.com/deferred-income-annuities/
If you have questions, please give us a call on our toll-free number, (800) 872-6684. We'll be very happy to help!
Best regards,
Kyle
Walter N.
2023-12-07 11:35:14
I would like my ROTH to be the owner of an immediate annuity for which I would be the annuitant. I would want the payments to be made to the ROTH so they would be tax free (the exclusionary rule would not apply). Is this possible?
Kyle
2023-12-12 09:53:50
Hi Walter,
Thank you for reaching out!
Unfortunately, you cannot receive monthly payments from an immediate annuity back into your Roth IRA. However, your annuity will be issued as a Roth IRA and your payments will be tax-free when they are distributed to you (assuming you've met all the Roth IRA distribution rules).
Please feel free to reach out with any additional questions.
Best regards,
Kyle
Lawrence P.
2024-11-12 12:37:14
I plan to purchase a qualified immediate annuity using lump sum distributions from my company pension and my company 401k. I may also add money from savings, which has already been taxed. Would this need to be a separate, non-qualified annuity, or can the two sources of money be combined into a single annuity?
Kyle
2024-11-12 12:47:51
Hi Lawrence,
In this case, your savings would have to go into a separate, non-qualified annuity. The funds from your pension and 401k would be rolled over into a Traditional IRA (qualified) annuity.
Best regards,
Kyle