I am wanting to invest in an annuity to provide supplemental income, how does this work?

Question

I am wanting to invest in an annuity with a portion of my savings (at least $5000) in order to generate some supplemental income while I am earning my engineering degree. What would be a good annuity to invest in providing immediate returns, with those returns being as large as possible? How would this system work?

Answer 1

As for a paying out annuity, commonly called an immediate annuity, is something that some companies can issue at a wide variety of ages, but usually that is a cash-out option from a life insurance policy after someone had died.

Here is how you do-it-yourself. First, start with the lump sum you are wanting to pay out. Next, determine the period of time that you want to pay out over, along with how often during that time you are going to want to pay yourself. Then you have to put the principle to work, bank, stocks, bonds, something. Now compute the income stream, which will be diminishing as you draw out the principle when then interest payments. (BTW, most spreadsheets will have functions that will do most of the calculations for you). At least this way you don't have some of the income sapped for the salesman's commissions, unfortunately you will have to pay taxes on the investment income. Essentially, you are divvying out your funds over the period and get the extra advantage of a few extra bucks the bank pays you for the money you have left in savings. $5,000 over 12 months is $416.66. If you get 2 percent from a common savings account, is about $100 a year, but since you are drawing down that, using the inverse rule of thumb, you will only average about one-third, some $30-40 over the year. That means instead of collecting $416 a month, it will be closer to $420 each month.

Now if you save up for retirement, then an annuity can be a safe and substantial stream of retirement earnings. What you are trying to do is too little--too soon. Think of it like fruit, you haven't given it time to ripen.

Answer 2

Annuities are not a good choice. The brokerage houses pay the highest commissions to their sales associates for selling annuities because they are a great product for the firm and not you. I'm going to presume you know the inter-workings of annuities, the payments that you receive are the highest allotted for the brokerage to still make money. The best thing to do is invest in a no load, no fee mutual fund that yields far better returns than any annuity will ever generate, and pay yourself what ever allowance you prefer. For a $5000 annuity that you immediately annuitize, I cannot foresee your payouts to exceed $20 to at the most $50 a month. And in the unfortunate event that something happens to you, the brokerage keeps the remaining balance. There is a way to circumvent that, but that in tails paying a larger fee to the brokerage, either upon sale or accepting smaller payments for the duration. I hope you make the smart choice.

Answer 3

How much of supplemental income are you looking at?
Give me around figure so I can give you a plan of doing it.

Answer 4

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