Which type of annuity allows for payments to start immediately upon purchase?

The annuity that allows for payments to start immediately upon purchase is an immediate annuity. This financial product is designed for individuals who are looking for a steady income stream right away, often used as part of retirement planning. When someone invests in an immediate annuity, they exchange a lump sum of money with an insurance company or financial institution, which then begins to make periodic payments to the annuitant almost immediately, usually within one month.

Immediate annuities differ from other types, such as deferred annuities, which do not start paying out until a future date set by the purchaser. Fixed and variable annuities can be structured as immediate or deferred depending on the specific terms. However, the defining feature of an immediate annuity is the prompt commencement of payment—providing immediate cash flow to the investor. This characteristic makes it particularly attractive for retirees seeking to convert their savings into a reliable income source.