immediate annuity
An annuity that begins paying income almost immediately after a lump sum purchase, providing guaranteed lifetime income in exchange for a one-time premium.
Example
“She converted $200,000 into an immediate annuity paying $1,100 per month for life — eliminating longevity risk.”
Memory Tip
IMMEDIATE ANNUITY = pay a lump sum, start receiving monthly checks right away. Trade capital for guaranteed income.
Why It Matters
Immediate annuities are important for retirees who want to convert savings into predictable monthly income they cannot outlive. This provides peace of mind about covering essential expenses throughout retirement, regardless of how long you live or market performance.
Common Misconception
Many people believe immediate annuities offer flexibility to access their money if circumstances change, but once you purchase one with a lump sum, that money is typically locked in and cannot be easily withdrawn. The guaranteed income comes at the cost of losing access to your principal.
In Practice
A 65-year-old retiree with $500,000 in savings purchases an immediate annuity and receives approximately $2,500 per month for life. This guaranteed income covers their mortgage and basic living expenses, while they use other retirement savings for healthcare and discretionary spending.
Etymology
IMMEDIATE (right away, without delay) ANNUITY. An ANNUITY that pays IMMEDIATELY after purchase.
Common Misspellings
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Related Terms
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See Also
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