Basics of Annuities
With the advances in modern healthcare, individuals are living longer than ever. Along with these advances though, come higher medical bills. By purchasing a type of annuity called an immediate annuity, you won’t have to worry about rising medical costs or other bills during your retirement. You will have a check in the mail every month, for the rest of your life.
How Immediate Annuities Work
In recent years, deferred annuities have become more popular for those planning for retirement. These annuities are purchased with a lump sum and are set aside for a certain number of years before retirement. When retirement begins, often ten or fifteen years later, the money that was initially invested will have grown as it gained interest. Immediate annuities are basically the opposite of deferred annuities. Instead of waiting years to see any kind of payment, the investor will receive his payments almost immediately, hence the name.
First, an investor purchases an immediate annuity for a certain amount of money. Depending on the amount and the life expectancy of the investor, payment plans are set up. The investor is guaranteed a payment, usually each month, for a certain amount. This type of financial contract allow the investor to place his money in a safe and secure place while still receiving the money he needs to pay all of his bills and take care of any emergent situations.
Lump Sum or Life Only
If you are interested in purchasing an immediate annuity, you may want to consider your options. There are two variations of this kind of lump sum annuity, and each will affect the amount that you receive every month.
- Life Income With Lump Sum Refund- This version of an immediate annuity guarantees you income for the rest of your life, and also provides for those that you leave behind. Your beneficiaries will be given the remaining portion of your money upon your death. While this type of immediate annuity can be beneficial to your family, it will lower the amount of your monthly payments.
- Life Only Annuities- If you are not worried about your beneficiaries receiving your left over money, this may be the choice for you. With this annuity, you will receive your payments, but when you pass away, the insurer will keep the remaining portion of your money. This version will allow you to receive higher payments every month as well.
Healthcare and Immediate Annuities
It is becoming more and more popular for individuals to use immediate annuities to help them qualify for Medicaid. With this type of annuity, your assets are sheltered and can not be used against you when you are applying for help with your healthcare. Many times, this process takes a lot of planning and the help of a licensed attorney, but if you can not afford to pay for health care and live from month to month, you may want to consider it.
Playing the Waiting Game
Although many individuals rush into purchasing an immediate annuity to help them budget their income, you may want to consider waiting. Immediate annuity payments are calculated based on the amount of time you are expected to live. If you wait for as long as you financially can, your payments may be higher.
Whether this type of lump sum annuity is right for you depends on your specific financial situation. If you need to budget out your money during retirement or need to invest it so it can be in a safe and secure place, you may want to consider one of these immediate annuities.