Immediate Annuities
How Will My Immediate Annuity Be Taxed?
The kind of savings used to purchase your immediate annuity will determine the taxes owed on the income payments you receive. We’ve broken down how you may be taxed.
The Financial Value of an Immediate Annuity
Published August 27, 2017
Comparing the exact financial value of an immediate annuity to a traditional investment product is like comparing apples to oranges. But it’s important to make some assumptions and run the numbers. So here it goes!
- An immediate annuity provides guaranteed income in retirement that lasts as long as you do
- In order to compare it to the expected return of investing in a bond, for example, you have to make a guess about how long you’ll live
If you’re wondering about the financial value of an immediate annuity, you’re definitely not alone! Our customers often want to know about the internal rate of return (IRR) or return on investment (ROI) in order to compare the returns to their market investments.
To calculate an IRR or ROI, we need to know the upfront investment and all future income amounts and dates. But an income annuity is a longevity insurance product which will provide you with income for as long as you’re alive, i.e. end date to be determined!
The best way to think about it is to calculate a range of IRRs based on your potential lifespan. The longer you live, the higher the IRR of your immediate annuity. Let’s use 65-year-old Matthew — his immediate annuity could wind up generating a 4.9% return if he lives until 90, which increases to 5.6% at age 95 and 6.1% at age 100.
Immediate annuity rates based on a $174,132 Integrity life-only policy for a male aged-65 with income starting immediately. Rates as of 10/4/2017.
While you should consider the expected IRR and the financial value of an immediate annuity as one factor when considering a purchase, don’t forget the added benefit of peace of mind that comes from knowing that the immediate annuity (unlike a bond) provides a lifetime income stream.
Remember, an immediate annuity is insurance. Its purpose is to protect your longevity via guaranteed lifetime income!
Ready to get your personalized immediate annuity quote? Visit our annuity calculator page here to get your quote in minutes.
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