An immediate annuity is an insurance contract where you make a single lump-sum payment and begin receiving regular income payments right away—typically within a year of purchase. It's the most straightforward way to convert a chunk of retirement savings into a predictable income stream, essentially creating your own pension-style paycheck.

When you purchase an immediate annuity, you decide how you want to receive payments—monthly, quarterly, or annually—and for how long. You can choose income for a specific number of years (period certain), for your lifetime only, for your lifetime with a guaranteed minimum period, or for the joint lifetimes of you and your spouse. The amount you receive depends on how much you invest, your age, current interest rates, and the payment structure you select.

Immediate annuities work best for people who've recently retired or are about to retire and want to ensure their essential expenses are covered with guaranteed income. The trade-off is that once you purchase an immediate annuity, you typically can't access the lump sum anymore—the money is irrevocably converted to an income stream. This is why many retirees annuitize only a portion of their savings, maintaining flexibility with the remainder.