Problem: Living Too Long
An immediate annuity is the most efficient way to address the risk of living too long. It provides a high level of income and is guaranteed for the life of the “annuitant.” This allows a retiree to increase their consumption rate and at the same time eliminate risk. There isn’t market fluctuation, nor is there a risk of exhausting capital.
The purpose of an immediate annuity is to establish an income stream that you can’t outlive. Most people who buy immediate annuities are retired and concerned that their money may run out. While there are variable immediate annuities, fixed annuities are more often used for this purpose. Since interest rates are currently very low, you may want to consider adding an inflation rider on your annuity. The inflation rider will allow for some increases in your monthly income over time to keep pace with rising inflation.