What are immediate annuities? Well, there are many different types of annuities are designed in order to allow people to build up some investment for their retirement while not putting their entire nest egg at risk. An immediate annuity gives people the benefit of receiving their income immediately during their retirement rather than over time.

When you invest in an immediate annuity you will be buying into a contract with an insurance company or a separate financial institution that sells annuities. There are a number of annuities pros and cons but basically in exchange of giving them a big pot of cash you will be able to receive this money back to you in installments over a certain period of time. Let’s have a look at a quick example to see if we can make our explanation a little clearer.

Let’s say that there is a seventy year old man who is looking to invest one hundred thousand dollars into an annuity. If you were to consider his life expectancy then we could say that he will receive roughly seven hundred dollars each month for the rest of his life. If something unexpected happens and he passes away earlier than expected then the remaining value of his investment will go towards his beneficiaries (pending the terms of the annuity). This option allows you to guarantee that the value of the annuity will pass down onto your relatives. It should be noted that this option is not always available for every annuity and it is important to read and understand the terms and conditions of the annuity before investing.

It is also possible to do a life only payout option. This is used for those who do not see the passing on of the money as that important and in this circumstance the man could be looking at more like nine hundred dollars a month for the rest of his life instead. Because the return is not passed on to relatives after you die the annuity provider is willing to provide a higher return because they are less likely to lose money.

Of course, there are certain drawbacks to getting any sort of annuity like this. The main one to consider will be the fact that they are designed to be ’safe’ and as such fail to present the best rates of return, which could otherwise be found elsewhere. As with any investment you can and often do lose money so be sure the annuity risk is within your risk level.