Immediate Fixed

WITH AN IMMEDIATE fixed annuity, you hand over a wad of money to an insurance company and, in return, the insurer sends you a check every month for a specified period. You can purchase annuities that will pay income for, say, 10 or 20 years. But if your financial worry is living longer than expected, you’ll want to buy an annuity that pays lifetime income.

To get a sense for how much income an annuity might generate, get an instant quote by heading to the websites of Fidelity (look for the link to the “guaranteed income estimator”), ImmediateAnnuities and Schwab. Suppose a Florida couple are both age 70 and they use $100,000 of their savings to buy an annuity that pays the same income every year for life. According to ImmediateAnnuities, as of December 2023, the annuity would pay $9,096 every year if the husband buys, $8,736 if the wife buys and $7,848 if the annuity pays income until the second spouse dies.

These payouts may not be as generous as you had hoped. If you delay Social Security, you get a big increase in benefits, because Social Security is designed to be fair based on the typical American’s life expectancy. By contrast, insurers deal with a more select group: They know that income annuities tend to be bought by folks who think they will live longer than average, so they’re priced accordingly. Still, the older you are when you buy an income annuity, the more income you can receive. If you buy when interest rates are higher, that should also mean a larger monthly check.

You can get an annuity that pays income just for your life or for the life of both you and your spouse. You can also get various guarantees, such as payments made for a minimum number of years, even if you die earlier. You almost always pay a price for these guarantees in the form of lower monthly income.

Still, the guarantees highlight the big fear with immediate fixed annuities—that you’ll make a big investment and keel over a few months later, having received little income from your big annuity investment. You might address this fear by making smaller annuity purchases over the course of perhaps five or 10 years. This will also allow you to buy from a variety of insurers, thus reducing the risk that your retirement will be imperiled by any one insurer going bankrupt, and perhaps you’ll be able to purchase at higher interest rates, should they rise from today’s level. Alternatively, you might explore a charitable gift annuity, where the beneficiary of your early demise would be your favorite charity. These are discussed in the chapter that covers estate planning issues.

Next: Longevity Insurance

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