Ask Money

Immediate Annuity

Chris Farrell May 17, 2008

Question: I am turning 70 in June and retiring as of July 1. I will be taking monthly disbursements from my IRA. I still have a balanced portfolio ranging from income producing to growth and income. My financial planner is recommending that I convert some of my IRA into annuities to protect my investment and to have a steady monthly income. Is this a wise move? Margaret, Fargo ND

Answer: I don’t know the specifics, but in general I am a fan of buying a measure of financial safety and financial comfort with an immediate annuity. You get a predictable monthly income (or quarterly or annual depending on the chosen payout option) on the investment for the rest of your life. An immediate annuity can offer financial security and piece of mind. It’s good advice.

There are a number of factors to consider. You should only do business with a highly rated insurance company, or an immediate annuity sold through a well-known mutual fund company. You want to work with a company with a blue chip balance sheet. You’ll need to shop around since your stream of income depends on how much you invest, your age, the interest rate, and other factors.

Inflation is another critical factor. After all, what’s one of the biggest risks you face with your savings? It’s inflation. If you want another source of information, you could check out the website It offers a number of home-brewed financial planning programs that I like. One of them helps you tell whether it makes sense to buy an immediate annuity or keep managing your investment yourself.

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