What is an immediate life annuity designed to do?

An immediate life annuity is primarily designed to convert a lump sum of money into a guaranteed stream of income for the rest of the annuitant's life. This financial product is often purchased at retirement, where individuals receive regular payments starting almost immediately, thus providing a sense of financial security during retirement. The payments continue for as long as the annuitant lives, ensuring that they do not outlive their income.

This structure is particularly appealing for retirees who want to ensure a stable and predictable cash flow, which can be crucial for meeting ongoing living expenses. The assurance of lifetime income can alleviate concerns about longevity risk, which is the risk of living longer than one's assets can support.

In contrast, options that suggest substantial growth over time or a flexible payment structure do not accurately reflect the purpose of an immediate life annuity. Instead, its primary focus is on providing consistent income rather than allowing for investment growth or flexibility in payment amounts. The option suggesting a single payment upon retirement mischaracterizes the nature of the annuity, as it implies a one-time disbursement rather than ongoing payments for life.