An immediate fixed annuity is a type of investment that is designed to provide regular income and steady payments. The investor funds the annuity by making a lump sum payment to the insurance company that is offering it, and immediately starts to receive annuity payments. The benefit of this type of investment is that it can provide consistent payments for a set amount of time, or even for the rest of an individual's life. This type of investment also has some drawbacks, including taking on the risk of investing a large amount of money with an insurance company, low returns, and high costs.
Using an immediate fixed annuity is a strategy that many individuals use upon retirement. This is common with people who receive a large lump sum of money from an inheritance or from a pension plan. Instead of holding on to the large amount, the investor feels more comfortable receiving smaller, regular payments. The immediate fixed annuity provides a vehicle for this need.
An immediate fixed annuity is a type of contract that is entered into between an individual investor and an insurance company. The investor agrees to provide the insurance company with a lump sum payment. The insurance company then agrees to take the money and invest it. The insurance company will then pay the individual a certain amount of money every month for an agreed upon period of time. The term of the annuity could be a fixed period of years or it could be guaranteed for the life of the individual.
A primary benefit of this type of investment is that it can provide immediate income for the investor. This is very desirable for many retirees because it allows them to live on a budget. The investor knows how much money he or she can count on every month, and the insurance company continually provide the checks.
One of the disadvantages of an immediate fixed annuity is that an investor has to rely on an insurance company. The insurance company has to stay in business in order to continue providing these paychecks. In addition, many people have a hard time giving an insurance company a large sum of money all at once.
This type of investment is also notorious for providing low returns on investment. This is not satisfying to many investors, who could do better with other types of securities. Annuities are also known for charging the investor with several different types of fees.