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If you want to supplement your monthly income and invest maintenance free, an Immediate Annuity could be the annuity product for you. In a Single Premium Immediate Annuity (SPIA) investors pay for the entire annuity with a single deposit.  Immediate Annuities can be purchased from insurance companies with funds from other investments or savings such as a CD, an IRA or 401k. The insurer guarantees the funds and Immediate Annuities are not subject to market risk.  Moreover state laws require surplus reserves to be available and this amount varies state to state. Right away the investor can expect guaranteed income in the form of regularly scheduled payments from an Immediate Annuity. Retirees can depend on this investment as a source of ongoing income for their lifetime at an interest rate that is usually higher than CD or Treasury rates.

An important attribute of an Immediate Annuity is the payout. Part of the principle is returned with each payment resulting in a higher payout and there are many options available to customize your payments. Immediate Annuities are taxed using the exclusion ratio method. Taxes are only incurred on the interest portion of the payment leaving the principal portion untaxed.

An Immediate Annuity functions as fixed income vehicle in that it cannot be redeemed once the first annuity payout is made.  Immediate Annuities are designed to provide lifetime income and offer protection against outliving your assets. There are dozens of varieties from which to choose. A financial advisor can help narrow this search and evaluate your level of asset protection planning.  They can help you assess how often you would like to receive your payments from the Immediate Annuity and how the payments should be made during your lifetime and beyond.

Here are the most common payout options:

1.      Lifetime Income

This option offers the highest lifetime benefit payments. Payments continue for life and end upon death.

2.      Lifetime Income with Certain Period

Benefit payments continue for a certain period of time or a lifetime. If annuitant dies before specified timeframe, a beneficiary will receive remaining payments.

3.      Life with Cash Refund

Benefits continue for life. If annuitant dies before the premium amount is paid out a lump sum will be paid to a beneficiary.

4.      Life with Installment Refund

Benefits continue for life. If the annuitant dies before the premium amount is paid the annuity payments will be paid to a beneficiary until the premium is refunded.

5.      Period Certain Income

Benefits continue for a certain period. If annuitant dies before specified timeframe the remainder of payments is paid to a beneficiary.

6.      Joint and Survivor

Used by married couples to provide payments for both spouses.