The most important advantage offered by annuity income is the assured income and the consequent security. One can possibly always fall back on these fixed monthly payouts, especially if earnings from other investments are reduced - when interest rates fall or perhaps the stock market slumps. The payments from immediate annuities still remain steady.
However, there are some potential disadvantages. If you purchase your immediate annuity when interest rates are down, the locked-in monthly payments will be smaller and can not keep up with inflation. You also won;t get an increase in annuity income when interest rates rise. Can this problem be rectified?
One needs to know that the annuity income is irrevocable after payments commence. (Some companies permit cancelling after the payments have started. This specific 'commutation' feature is expensive, however). So you need to understand the simplest way to maximize annuity income from an immediate annuity.
The annuity income, while fixed once started, will vary depending on the amount you're investing, your age, and the annuity company's current interest rate. Different companies will offer differing payments for the same sum invested as they don;t all pay the same rate. Therefore, it is prudent to study offers through many highly rated annuity companies before picking out one.
You should not let any person hurry you into determining without adequate research since the consequences are permanent. You have to check the company's rating by A.M. Best & Company or Standard & Poors. This is because the monthly annuity income payments is going to be needed for the long term.
Sometimes, even if you are ready to purchase an annuity for income, and rates are low, you can use an option that may help. In such instances you could ladder your annuity investment to be able to leverage the expected potential rise in interest rates. This can be done by splitting the sum set aside for your immediate annuity into several equal parts. That is, instead of investing $100,000 today, invest $20,000 this year and each of the next 4 years.
Hopefully, interest rates rise, and you will be able to get more annuity income for the contracts you purchase in the future.
In the long run you will get several annuity income checks per month. Assuming there has been any increase in rates, the total annuity income is likely to be larger than from a single annuity purchased while annuity rates are low. However, in the event that interest rates decline in the future, this laddering may result in a lower rate of return. Your unpredictability of interest rates adds some risk to this investment method.
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