What are its disadvantages?

Depending on whether the annuity is fixed or variable, immediate annuities can have various drawbacks ranging from loss of purchasing power from inflation (with a fixed annuity), or high fees (with a variable annuity).

For example, a fixed annuity guarantees you a set payment for a long period of time - possibly the rest of your life. But you might live longer than you think. Those payments you started getting when you first retired won't change at all, and they might seem pretty measly after 40 years of inflation.

A variable immediate annuity might keep your payments from being eroded by inflation - but then again they might not. Payments bounce up or down each month depending on the performance of your underlying investments, which can make budgeting tricky. And payments can drop substantially over the short term if the markets fall.

Most stock quote data provided by BATS. Market indices are shown in real time, except for the DJIA, which is delayed by two minutes. All times are ET. Disclaimer. Morningstar: © 2018 Morningstar, Inc. All Rights Reserved. Factset: FactSet Research Systems Inc. 2018. All rights reserved. Chicago Mercantile Association: Certain market data is the property of Chicago Mercantile Exchange Inc. and its licensors. All rights reserved. Dow Jones: The Dow Jones branded indices are proprietary to and are calculated, distributed and marketed by DJI Opco, a subsidiary of S&P Dow Jones Indices LLC and have been licensed for use to S&P Opco, LLC and CNN. Standard & Poor's and S&P are registered trademarks of Standard & Poor's Financial Services LLC and Dow Jones is a registered trademark of Dow Jones Trademark Holdings LLC. All content of the Dow Jones branded indices © S&P Dow Jones Indices LLC 2018 and/or its affiliates.