An immediate fixed annuity contract can seem complex, but once understood is actually a fair straightforward and simple investment product. The basic purpose of an immediate annuity is to provide a steady source of income for an investor and is often set up to fund a wide variety of needs. This type of annuity product can be specifically designed in order to meet your specific investing goals and what you want to accomplish with the annuity.
To create an annuity, you will usually purchase a contract with an investment company. This purchase can be paid for with a single lump sum payment or by a schedule of payments over a period of time. The premiums paid are then returned to the investor in the form of steady, fixed payments over an agreed upon period of time. The contract will specify what time period the payments are made for; such as a set period or the entire lifetime of the investor. A contract with a lifetime option will need to consider many factors including the life expectancy. The longer the annuitant is expected to live, the smaller the monthly payments received will be.
The fixed piece in the contract can refer to two different types of investments. One is a fixed rate annuity, which means that a predetermined interest rate will be applied to the initial premium that will control the development or growth of the fund and the size of the payouts. This means that your investment will not be subject to changes in the market. The other is a fixed payment, which means the payout will be fixed.
These annuities can be used for many types of investment goals. Some people will use the regular payments to fund insurance premiums or to meet other financial obligations. Many people will use the fixed annuity to provide a reliable income source throughout their retirement. Though this is a simple product to understand, it is important to discuss your goals and specific needs with a qualified investment advisor to protect yourself and your assets.
