Annuities meet many needs of today?s consumers

Annuities have become very popular products in recent years because of their ability to address so many needs of to-day's consumers, especially those nearing retirement and those already retired.

An annuity is a contract, purchased from an insurance company, that enables you either to build money for retirement on a tax-favored basis (deferred annuity) or to turn a pool of money into a stream of income guaranteed for a fixed period of time or for life (immediate annuity).

This latter type of annuity, an immediate annuity, can be thought of as the opposite of life insurance. While life insurance provides protection against dying too soon, a lifetime immediate annuity provides protection against "living too long."

It is unique in that it can turn their savings into a stream of payments that will last their entire lifetime.

Immediate annuities

Immediate annuities can be used for many purposes, all involving a need to generate an income out of an existing pool of money. For example, many people purchase immediate annuities as a payout vehicle for their retirement savings.

With people living longer and longer, many retirees are concerned that their savings may eventually run out.

By purchasing a lifetime immediate annuity, retirees can ob-tain an income stream for the rest of their lives. They may also be able to save on their taxes, especially if their retirement savings are in a tax-qualified pension plan, where taking the money all at once could result in a huge tax liability right away that eats into their retirement nest egg.

In some states, the income from an immediate annuity doesn't count when determining eligibility for Medicaid. Others use immediate annuities to spread out the receipt of a large sum from an inheritance or the proceeds from a life insurance policy.

Fixed-term annuity

Some use a fixed-term immediate annuity in order to bridge a temporary gap in income, such as between the date of early retirement and the date on which their Social Security benefits would be the highest.

Such fixed-term immediate annuities can also be used to spread money over the period of time it will be needed, such as during the years a couple needs to fund their children's education.

When a client purchases an immediate annuity, he or she pays the insurance company a lump-sum payment, called a premium, and the insurance company promises to send income payments. In fact, what the client is buying is a promise.

It's important that buyers match the income to their needs while also leaving enough money aside for emergencies, since the purchase of an immediate annuity is an irrevocable commitment, usually for the long term, for both the client and the insurance company.

That's why it's also important to pick a strong insurance company, since the promise bought is only as good as the insurance company making it, and the client wants a company that will be there down the road to honor its commitment.

Rate of return

Most immediate annuities lock in a fixed rate of return and generate a fixed payment amount. Therefore, payments won't be affected by the daily ups and downs of the financial markets. The buy-er usually has the flexibility to choose the frequency with which payments are received, generally monthly, quarterly, semi-annually or annually.

The buyer can also have the payments sent to someone else, if preferred, or even deposited directly to his bank account.

The buyer can also choose some additional features in exchange for a slightly lower income payment. For example, a joint and survivor immediate annuity can be used to make a pool of money last for the duration of two people's lives (usually husband and wife) or to provide a percentage of the income to a surviving spouse.

A pure life or no-refund lifetime im-mediate annuity would provide for payments to stop upon death (or the death of both annuitants with a joint and survivor lifetime immediate annuity), but the buyer can choose to guarantee a minimum number of payments so that heirs will continue to receive payments if he dies before all of the guaranteed payments have been made.

Peace of mind

Many people find that immediate annuities can provide them with the peace of mind they want during their retirement years.

They sleep better knowing that they have an income stream they can use to help pay their daily living expenses, and they don't have to worry about managing that money or how it would be affected by financial market swings. For some individuals, an immediate annuity is just what they've been looking for.

(Ron Fox is an agent for New York Life Insurance Company and a registered representative for NYLIFE Se-curities Inc.)