It is of the utmost importance, for instance, to purchase an immediate annuity from a company with the highest possible credit rating and a reputation for quality. It is also important to check with your state’s insurance commission to make sure your payments will be protected in the event the company who provided the annuity were to go out of business. Without these protections in place an immediate annuity amounts to little more than a promise to pay.

Some annuity providers may also charge high fees when creating the immediate annuity, so it is important to shop carefully and compare costs at different institutions. Keeping your costs low can help to increase your monthly payments and give you a more secure life in retirement.

And of course it is important to consider how inflation may eat into the value of those monthly annuity payments. Even a moderate rate of inflation can significantly reduce your purchasing power over time, so it is important to factor this reduced buying power into the equation. In some cases it may even be worthwhile to accept a lower initial payout in exchange for ongoing protection from the ravages of inflation. Many annuity providers offer indexed payments that automatically rise with the cost of living, similar to the way Social Security works. In the long run it may be worthwhile to accept a lower payment in exchange for this kind of sleep well at night protection.

Finally, many financial planners recommend that retirees use only a part of their nest eggs when purchasing an immediate annuity, investing the remainder in a conservative mix of stocks and bonds. This approach ensures that there will be funds available in the event a large expense crops up in the future. By keeping a part of the nest egg available retirees can protect themselves from the unexpected while still enjoying a steady stream of income throughout their lives.