An individual immediate variable annuity is an annuity that starts paying income soon after purchase, with payments that change based on investment performance.
Understanding Individual Immediate Variable Annuities in Plain English
An individual immediate variable annuity is a type of insurance contract designed to turn a lump sum of money into income almost right away. “Individual” means it’s owned by one person. “Immediate” means payments begin shortly after you buy the annuity. And “variable” means the payment amount can go up or down over time.
Unlike fixed annuities that pay the same amount every period, an immediate variable annuity pays income that varies based on the value of underlying investments, usually equity-based portfolios held in a separate account.
When Do Payments Start?
One of the defining features of an individual immediate variable annuity is how quickly income begins.
After you purchase the annuity:
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Payments typically start at the end of the first payment interval
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The interval could be monthly, quarterly, or annual
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By rule, payments must begin within 13 months of purchase
This makes immediate variable annuities appealing to people who need income now or very soon, such as retirees.
How the Variable Payments Work
With this type of annuity, your money is invested by the insurance company into separate accounts that hold equity investments, like stock-based portfolios.
Your income payments depend on:
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How well those investments perform
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The number of annuity units you own
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The value of each unit at payment time
If the investments perform well, your payments can increase. If the market declines, your payments may decrease.
A Simple Example
Imagine you retire and use $200,000 to buy an individual immediate variable annuity.
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In the first year, the market performs well and your monthly payments rise slightly
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In a weak market year, those payments may drop
Your income adjusts over time based on investment performance, offering growth potential but no fixed guarantee.
Why People Choose Immediate Variable Annuities
Many people choose individual immediate variable annuities because they offer:
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Quick access to retirement income
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Potential for rising payments over time
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A hedge against inflation
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Lifetime income options
For retirees concerned that fixed payments may lose purchasing power, variable income can be an attractive feature.
Risks and Trade-Offs to Understand
While there are benefits, individual immediate variable annuities also carry important risks.
Key considerations include:
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Payments are not guaranteed and may decrease
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Income depends on market performance
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Fees and expenses can reduce returns
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Less flexibility once income begins
Because of these factors, this type of annuity is best suited for people comfortable with investment risk.
Immediate Variable vs. Other Annuities
It helps to compare immediate variable annuities with other annuity types.
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Immediate fixed annuities offer stable, predictable payments
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Deferred variable annuities focus on long-term growth before income starts
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Immediate variable annuities start income quickly but fluctuate over time
Each option serves different retirement needs and risk preferences.
Who Might Consider This Type of Annuity?
An individual immediate variable annuity may be a good fit if you:
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Are already retired or retiring soon
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Want income to begin within a year
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Are comfortable with payment fluctuations
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Want potential growth to offset inflation
It’s often used as part of a broader retirement income strategy rather than a stand-alone solution.
The Big Picture
An individual immediate variable annuity provides income that begins within 13 months of purchase and varies with the performance of equity investments held by the insurance company.
For retirees seeking immediate income with growth potential, this type of annuity can offer flexibility — as long as the risks are well understood.
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