subject: Immediate Annuity Gives You A Guaranteed Cash Flow Of 6% [print this page] An immediate annuity is an insurance company contract that pays you a guaranteed monthly (or yearly) income for a stated period of time. The payments are guaranteed by the company that issues the annuity, so this transaction should be undertaken with a well-rated insurer.
When an immediate annuity is purchased with after-tax money, each payment is treated by the IRS partially as a return of principal, therefore tax free. The rest of the payment is taxable interest.
Some immediate annuities are tied to life expectancy; others are not. In a Period Certain or Term Certain annuity payments are made for a guaranteed number of years. If the owner dies, the payments continue to the beneficiaries for the remainder of the contract term.
Immediate annuities promise to yield a stream of regular income that is a great support for the retirees who do not have any source of regular income. As per this plan, the retired people receive a certain amount of money by check on a fixed date every month. They do not have to wain for means to meet their monthly expenses.
Exclusion ration is one of the benefits of immediate annuity. It refers to the principal amount of annuity, that is not taxable as the principal money is repayable. Hence, tax is levied only on the interest. Thus, the tax that immediate annuities require the holders to pay is lower than that of other investment options.
Immediate annuities come with protection from creditors during times of financial hardship. Hence, going for immediate annuity is a good option for those who are on the verge of bankruptcy. Immediate annuity plans promise better returns. When the interest rates spiral downwards as well as returns from the other fixed deposit schemes shrinks, immediate annuities offer attractive returns.
Now we are ready for the annuity math. You can purchase a 25 year Period Certain immediate annuity that will generate payments of $539 per $100,000 premium. Income of $539 each month will be paid for 300 months or $6,468 per year for 25 years. That's a cash flow rate greater than 6% a year. What's better is that 75% of each payment is considered a tax-free return of principal.
