With such great advances in medical technology today, many people will live 20 or more years in retirement. While this is wonderful news, it does bring about one dilemma – what to do about the possibility of outliving your savings.

Proper planning can help you to avoid this situation. One financial product in particular – an immediate annuity - can guarantee an income stream immediately, while at the same time providing an income you cannot outlive.

How Do Immediate Annuities Work?

Immediate annuities are purchased with a lump sum, and begin making payments to you immediately, or within a short period of time. In return for your lump sum premium, the insurance company will make regular payments to you and / or your designated beneficiary for a pre-determined amount of time, such as for the remainder of your life.

The interest rates that are used to determine immediate annuity income follow the trends in corporate bonds and long term Treasuries. In addition, because part of your principal is also returned with each of your income payments, a higher amount is received than if you were just receiving interest payments alone.

Should You Choose a Fixed or Variable Immediate Annuity?

With an immediate annuity, you can choose your payment structure. For example, fixed immediate annuities will guarantee the amount of income you receive each month, whereas variable immediate annuities pay you income that is based on the performance of the annuity funds, or sub accounts, that you pick from your annuity contract.

A variable annuity could potentially provide you a higher amount of income when your sub accounts are performing well, however, your income could decrease substantially with a downturn in the stock market. A fixed immediate annuity, on the other hand, will steadily provide the same payment amount each month. Rather than worry about your retirement income, fixed immediate annuities provide you with a guaranteed monthly amount that won’t change over time, no matter what happens in the market.

How Much Income Will You Receive?

A great way to help you determine how much income you will receive, or how much you need to deposit in order to receive a specific payment amount, is by using an immediate annuity calculator.

To calculate the benefit amount you can receive with an immediate annuity, click on this annuity calculator and type in the amount you plan to give the insurance company, or the amount of monthly income you would like to receive.

Other Immediate Annuity Benefits

In addition to safety and security, you may also receive preferred tax treatment with an immediate annuity. You could postpone paying the taxes on some of the annuity earnings that have accrued in a tax-deferred annuity when it is exchanged into an immediate annuity under Section 1035 of the tax code (‘1035 Exchange’).

If you are retired or are approaching retirement and are fearful of outliving your savings, consider adding an immediate annuity to your portfolio. It can give you peace of mind in knowing that you will have an income you cannot outlive.