What does an immediate annuity consist of?

An immediate annuity is characterized by a single premium payment made upfront, which then provides a stream of income that begins almost immediately, typically within one year of the purchase. This structure allows the annuitant to convert a lump-sum amount into a series of regular payments for a specified period or for the remainder of their life.

When a person purchases an immediate annuity, they are essentially trading a single payment for the promise of future income. This contrasts with options that involve multiple premiums over time or periodic installments that may not start immediately, as immediate annuities focus specifically on the prompt delivery of funds following the initial lump-sum payment. The appeal of immediate annuities lies in their ability to provide guaranteed income, making them a common choice for retirees seeking to manage their cash flow for essentials.