The short answer: when your household retirement income is more than enough to cover all of your expenses then an immediate annuity may not be a good fit. On the other hand, if you and your spouse need another stream of guaranteed income when you separate from federal service, you may want to consider buying an immediate annuity when you’re close to your retirement date.
What Is An Immediate Annuity?
An immediate annuity is an insurance product that converts a lump sum payment into a guaranteed stream of income that can start as early as 30 days after the contract is signed. This type of annuity is usually purchased by recent retirees or people close to their retirement date.
In addition to tax-free compounded growth, if you use post-tax funds to purchase an immediate annuity, you’ll have retirement income that’s partially tax free. Since there are many different types of annuity products, it’s important to fully understand the differences before you make a final decision.
“A high rate shouldn’t be the only deciding factor – also consider provisions for cost-of-living adjustments, death benefits, and long-term-care riders.”
Tips To Consider Before Buying An Immediate Annuity
For federal employees, an immediate annuity may be a good option if you’re retiring soon and considering investing funds from your traditional or Roth Thrift Savings Plan (TSP) balances. However, since any annuity is a complex contract between you and a private insurance carrier, you need to do your research before you purchase one.
- Start by assessing your financial goals – now and in the future – then decide if an annuity can provide a way to achieve your goals.
- To help determine the best annuity product for you to purchase, establish how much you’re willing to invest and decide on your level of risk tolerance.
- Make the effort to request quotes from reputable insurance carriers you can trust and compare annuity interest rates, payouts, and investment options.
- A high rate of return shouldn’t be the only deciding factor; also consider provisions for cost-of-living adjustments, death benefits, and long-term care.
An Advisor Can Help You Compare Annuity Products
Purchasing an immediate annuity is a big investment and navigating the process by yourself can be risky. Consider working with a professional who has earned the Federal Retirement Consultant℠ (FRC) designation. In addition to completing comprehensive training in all of your federal benefits, each designee has been fully vetted, including a background check. You can trust an FRC® trained advisor to help you compare different types of annuities and explore the best retirement strategies for your financial situation.
