Single Premium Immediate Annuity

A single premium immediate annuity investment is extremely useful for certain circumstances. The single premium means that a lump sum is paid in order to initiate the annuity. Immediate Annuity refers to the income stream starting immediately upon payment of the premium.

There can be many variations to this type of annuity in terms of the life of the annuity, life or a fixed term. Those are the basics but coverage can be extended as well at the price of reduced distribution payments. For instance, there are variations such as installment refund annuities refund annuities that will continue the balance of the principal to a designated beneficiary minus the funds that have been distributed or Joint and Survivor Annuities that will continue over the life of not only the holder but also the survivor until the annuity has been distributed. For each risk, the issuer takes the overall return rates may be affected with life annuities.

Minimum payments required for a single premium annuity with immediate payments might be as low as $5000 but the larger the investment the more sizeable the disbursements will usually be. $20,000 to $200,000 investments are not uncommon. More funds cannot be added to this type of annuity unlike multiple payment annuities often used by younger persons preparing for their retirement years.

This type of annuity is particularly useful for persons close to retirement or already retired. Younger persons can afford and usually prefer to make several payments to build up their retirement funds while an individual on a fixed income may prefer the secure investment and the immediate income supplement.

Annuities can benefit from special tax considerations but only if the funds qualify for the status. For instance, funds that have been tax sheltered are considered qualified funds are taxed normally since they were previously sheltered.

However, Non-Qualified funding which has already been taxed is not taxed again on distribution only a percentage of the disbursement that is considered capital gains. This can result in significant savings when they really count however careful planning is also required to know how much to invest and from what funding source.

On the negative side of a single premium immediate annuity is that this type of investment rarely returns the highest rates. They are instead intended to secure a steady income stream that is protected.

Single premium immediate annuities have fixed terms and in most circumstances, they cannot be changed afterwards so there is a lack of flexibility there but that need not be a negative with proper planning.

If you should choose a fixed rate, single premium immediate annuities investments then you are also hampered by a fixed income. This is attractive in that a secure fixed income, is always a boon to a retired person but inflation is always an issue with fixed incomes.

In a word, single premium immediate annuities have some very attractive features but they must fit in with your long term investment strategies to be a truly useful investment tool and to not only provide security but comfort.

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