An immediate variable annuity is an insurance product for which an individual pays a lump sum upfront and receives payments right away. The payments from an immediate variable annuity continue for the lifetime of the annuity holder, but the amounts fluctuate based on the underlying portfolio‘s performance.

An immediate variable annuity is a type of annuity in which a policyholder deposits a lump sum into an account, after which the annuitization phase begins.
This is different from other annuities, in which there is an accumulation phase first, in which the policyholder makes payments that grow tax-free until the end of the phase, at which point the annuitization phase begins.
However, just like a standard variable annuity, an immediate variable annuity’s payments may rise and fall depending on the performance of the underlying investment.
The advantage over a standard variable annuity is that the immediate variable annuity skips straight to the payments.
The disadvantage is one of timing: if the immediate variable annuity is bought at the top of a bull run, future payments will likely decline as the market corrects.

The immediate variable annuity is unique because most annuities have payouts that begin after an accumulation phase and end at a specified age. The immediate variable annuity skips the accumulation phase by requiring the holder to contribute a lump sum after which the annuitization phase begins. Immediate variable annuities are not typical, but they can be a wise investment when an investor is older and concerned that they might outlive their savings.

Immediate variable annuities carry the same risks as normal variable annuities because the payouts vary and may fall when the value of the underlying assets drop. However, the payments may also increase if the investment performs well, and the return might even beat the cost of inflation. This is not the case for fixed annuities that pay the investor the same amount each month.

The difference between an immediate variable annuity and a standard variable annuity is that the former lacks an accumulation phase. Instead, for an immediate variable annuity, the period is compressed into one lump sum investment, which introduces the risk of market timing. If an investor buys an immediate variable annuity at the height of a bull market, for example, future income will drop as the market reverts to the mean. This could mean that the annuity holder is unlikely to see a sizable return on the variable portion of the annuity.

Immediate fixed annuities guarantee a set payment every month, providing consistency. Immediate variable annuities are riskier–they rise and fall in tune with the market–but they therefore also have the potential to provide a better payout.

Immediate fixed annuities payments will not change if the market takes off after the initial lump-sum investment because the annuity provider guarantees the payments. Some providers of immediate variable annuities will also guarantee a percentage on the variable portions, but higher fees typically accompany these guarantees. A general rule for annuity investments is the greater the guarantees, the higher the price.

401(k)s and IRAs typically use immediate annuities. Immediate variable annuities do not offer the tax advantages of other retirement accounts. For example, before-tax retirement plans such as 401(k)s allow the individual to defer taxes on investment gains and reduce their current taxable income. However, immediate variable annuities offer consistent income until death with a potential bonus on top depending on the underlying asset’s performance.


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