7 Things to Know About Income Annuities

Will your retirement savings last as long as you do? One way to help ensure that they do is to use an income annuity to turn part of your retirement savings into a stream of income that lasts your lifetime.

An income annuity provides a reliable stream of income retirement.
An income annuity is a contract between you and an insurance company in which the insurance company promises to pay you an income for life or a specified number of years in exchange for your upfront premium payment.

The income is guaranteed. 
With an income annuity, the insurance company guarantees that you will receive income payments for as long as you live or the entire period you choose. Knowing that you’ll have a steady stream of guaranteed income in retirement may help alleviate some of the concerns you may have about outliving your savings.1

The annuity can cover one life, two lives, or a period of years.

If you choose income for one life, the income payments will continue for as long as you live. If you choose income for two lives, the income payments will continue for your lifetime and the other person’s lifetime. This option is typically chosen by married couples who want the income payments to continue even after one spouse has died.

The income can begin nearly immediately.
If you want the income payments to begin within the next year, consider an immediate income annuity. This type of annuity is purchased with one premium payment, usually at or near the time you retire, and payments can begin nearly immediately, generally from 30 days to one year after the purchase.

Or the income can begin years from now.
If you want the income payments to begin after one year, consider a deferred income annuity. With this type of annuity, you pay the premium now, or over time, and the income payments begin on a date you select, generally from 13 months to 40 years after purchasing the annuity.

For instance, you might purchase an annuity at age 60 and choose to have the income payments begin at age 80. The advantage of delaying the start of the income payments is that the longer you wait, generally the higher the income payments will be when they start. And that extra income in the later years of your retirement when your retirement savings may be running low can make a significant difference to your quality of life.

Your beneficiary may receive a payout after you die.
Income annuities offer a variety of income options, some of which allow you to name a beneficiary to receive a payout if you die early.

If you want to name a beneficiary, one income option to consider is life with period certain, which generally makes income payments for as long as you live or a specified number of years, whichever is longer. For example, let’s say you choose income for one life with a 10-year period certain. You will receive income payments for your lifetime, no matter how long you live. If you pass away before the end of the 10-year period, your beneficiary will receive the income payments for the remainder of the 10-year period.

Another income option you may want to consider is life with a refund so that if you die before receiving income equal to the amount you paid for the annuity, your beneficiary receives the difference.

It’s a good idea to also have savings and investments.
After you purchase an income annuity, you may have limited or no access to the money you purchased it with. Because of this, it’s a good idea to also have savings and investments that you can draw on for emergencies and large expenses, such as a new car. And if your goal is to use the annuity to help cover your essential expenses, you’ll generally need some savings and investments to help fund the fun in your life, such as hobbies and travel.

1 Guarantees are subject to the claims-paying ability of the issuing insurance company.

 Please consult your financial professional for advice on planning your retirement income.


Article published in September 2021 edition of Eye on Money. If you would like to be added to our mail list please email [email protected].