Annuities are an excellent vehicle for guaranteed immediate or future lifetime income streams. However, there are also alternatives to accessing funds in Deferred and Immediate Annuities beyond initiating the lifetime income stream.
Deferred Annuities:
Typically, withdrawals of interest earned are allowed from fixed deferred annuities. Many times, contracts allow for 10% of the annual contract accumulation value (15% in some cases).
Cumulative liquidity in a deferred annuity is a great feature for clients that want to keep their options open. These contracts offer a 10% per year liquidity option, however they allow that 10% to “roll over” to the next contract year if it is unused. 20% liquidity would be available in year 2, 30% in year 3. In the 3rd year the client would have a great opportunity to get a lay of the land and move some funds to another position if a more favorable one was available.
Increased liquidity for Nursing Home confinement is also a common feature of deferred annuities.
Return of Premium is also available for clients that wish for extreme liquidity.
Immediate Annuities:
Payment Advance is a feature in some Single Premium Immediate Annuities that allows the insured to get an advance of payments if some extra money is needed short term. Up to six months of payments can be asked for. After six months, the normal payments would pick back up again.
Commutation features allow insureds to take a bulk surrender amount out of an immediate annuity. Initiation of this feature will reduce the income stream going forward either permanently or temporarily depending on the withdrawal amount.
End Result:
The result is flexibility. There are many benefits to Deferred and Immediate Annuities beyond the generation of guaranteed lifetime income and there may be more freedom in a fixed annuity contract than many expect.
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