Broker Check

Understanding Annuities Part 4

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Immediate annuities can be indexed annuities or fixed interest rate annuities both can provide you with a steady stream of payments that will continue for the rest of your life, or for the time period you choose.

  • Immediate Index Annuity allows for income payments track an outside index like the S&P 500 where both the income payment and the annuity’s accumulation increase based in part on the yearly of the index. With a fixed index annuity none of your funds are invested in the S&P it is used only for determining the interest rate or the index credit.
  • Fixed interest immediate annuity uses a declared fixed interest rate to determine income payments.
  • Because an immediate fixed or indexed annuity can provide you with a guaranteed income for life, you won’t have to worry about outliving your retirement savings.

If you’re about to retire, this annuity is a good place to rollover or direct transfer a lump sum of money that you’ve accumulated through a 401(k), 403(b) or other qualified retirement plans. In many cases pension plans offer a lump sum option and these can be rolled over to an immediate income fixed or indexed annuity. No taxes are due at time of rollover if the fixed income annuity is a traditional IRA. Once you’ve made your one-time payment, income payments can start in 30 days or be deferred and continue to accumulate interest or index credits.

You can choose from a number of options for receiving
income from an immediate fixed or indexed income annuity.

  • A life income option guarantees a specified income for as long as you live. Some people like to add a cash refund or annuity installment refund benefit to insure their beneficiaries receive any money not paid out during their lives.
  • A period certain income annuity guarantees an income for a specific period of time, such as 15 years.
  • The most popular choice is known as a joint and survivor option, in which the insurance company guarantees that income payments will continue for the life of the primary annuity owner and the person he or she chooses.
  • An immediate income annuity lets you choose how often to receive your income payments monthly, quarterly, semi-annual, or annually.
  • Some indexed income annuities offer an option for future increases of payments based on the performance of an index like the S&P 500. Once the income payment is increased it cannot be reduced.
  • Fixed interest immediate income annuities may have a cost of living increase based on a set interest rate or the CPI.
  • If the annuity funds are non-qualified such as those from a certificate of deposit or bonds you will only be taxed on the earnings portion of each payment, not the principal portion.
  • You may also be able to decrease your tax payments by shifting other income producing assets to an indexed or fixed immediate income annuity.