An Immediate Annuity allows you to convert money saved for retirement into an income stream. It is an investment that provides a regular income over an agreed period in exchange for a lump sum payment.
Immediate Annuities can be purchased with ordinary money or with superannuation money. If you purchase with ordinary money, annuities may be in single or joint names. Annuities purchased with superannuation must be only in the name of the person who owns the superannuation.
The amount of money required to purchase an annuity depends on current interest rates, the income you want and the features you require. The minimum investment is usually $10,000.
There are three types of immediate annuities;
- Lifetime
The payment continues for the investors' entire life regardless of how long they live. A guaranteed period for a lifetime annuity ensures that the balance of the annuity is paid to your estate upon death, should you die during that period. - Term Certain
The payment continues for a pre-determined period. - Complying Annuity
These must be payable for a lifetime and it cannot be withdrawn within six months. You can only index to the lesser of CPI or 5%.
With an immediate annuity the income component of the regular payment is taxed in your hands at the investor's own tax rate. The part that represents a return on capital is not taxed.