Income Annuities
Providing a guaranteed income stream for life
How Income Annuities Work
Income annuities are best suited for retirees that want the peace of mind of receiving guaranteed income for life.
An investment amount (premium) is paid to the carrier in exchange for guaranteed regular income payments. Payment installments can be received monthly, quarterly or annually, as determined by you.
The income stream can last for life, the life of your spouse, and with some products, you can elect to have the remaining principal passed to your heirs.
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Types of Income Annuities
Immediate Annuities
Start receiving guaranteed income in as soon as 30 days or at a predetermined date in the future.
Deferred Income Annuities (DIAs)
Deferred Income Annuities are purchased today, with a guaranteed income stream starting anywhere from 1 to 20 years in the future, as determined by you.
Fixed Index Annuities with Income Riders
Receive guaranteed income for life while your account value grows based on index performance.
Benefits of an Income Annuity
Income annuities offer several benefits that make them an attractive option for individuals seeking financial security and stability in their retirement years. One of the primary advantages is the guaranteed stream of income they provide for the rest of the annuitant’s life, easing concerns about outliving one’s savings. Additionally, income annuities offer protection against market volatility, as the payments are not dependent on the performance of investments. This stability makes them a reliable source of income, especially in times of economic uncertainty too. Income annuities can be customized to suit individual needs, allowing for options such as joint and survivor annuities to provide for a spouse or beneficiary after the annuitant’s passing. Some annuities offer inflation protection to help maintain purchasing power. Overall, income annuities are a valuable financial tool for retirees looking to secure a dependable income stream and peace of mind during their later years.
Difference Between Income & Growth Annuities
Income and growth annuities serve different purposes in a financial strategy, catering to distinct priorities and preferences. Income annuities focus on providing a reliable stream of payments, typically in the form of regular income, throughout the annuitant’s lifetime. These annuities are designed to address concerns about outliving one’s savings, offering financial security during retirement. On the other hand, growth annuities prioritize the accumulation of wealth over time. Multi-year guaranteed annuities (fixed rate annuities) provide just that; a guaranteed return over time, while index annuities grow based on market performance. In essence, the key difference lies in the primary goal – income annuities prioritize steady payments for financial security, while growth annuities emphasize principal protected growth. Individuals should carefully consider their financial objectives and risk tolerance when choosing between these two types of annuities. It is important to note that some growth annuities offer the ability to take interest earned as income.
Frequently Asked Income Annuity Questions
1) How does an income annuity work?
Answer: Income annuities work by converting a lump sum, often from retirement savings, into a regular and guaranteed stream of income over a specified period or for life.
2) What types of income annuities are available?
Answer: Various types of annuities can provide income, including immediate and deferred income annuities, as well as fixed and variable index annuities.
3) Can I access the principal of my annuity in case of an emergency?
Answer: Accessing the principal of an income annuity may be limited, and early withdrawals may be subject to surrender charges. It’s important to carefully review the terms of the annuity contract.
4) What are possible drawbacks for income annuities?
Answer: Annuities often come with fixed terms, and altering the terms after purchase may result in surrender charges or fees. This lack of flexibility can be a drawback for individuals who value the ability to make changes to their financial plans. A lack of liquidity might be a concern as well if you anticipate needing a significant sum of money for unexpected expenses.
5) What are the expected returns from income annuities?
Answer: The expected returns for income annuities are generally lower compared to riskier investment options, as these financial products prioritize stability and guaranteed income over the potential for higher returns. The returns from income annuities are typically in the form of a fixed or predetermined stream of payments, and they are influenced by the following various factors:
- Interest Rates:
Annuity payouts are influenced by prevailing interest rates at the time of purchase. Higher interest rates generally result in higher annuity income, while lower rates may lead to lower payouts. - Annuity Type:
Fixed annuities offer a set, guaranteed interest rate for a specified period, providing a predictable income stream. Variable annuities, on the other hand, link payments to the performance of underlying investments, introducing a level of market risk. - Life Expectancy:
Annuity payments are often based on life expectancy calculations. The longer the life expectancy, the lower the individual payouts, as the insurance company expects to make payments for a longer duration. - Inflation Protection:
If the annuity includes inflation protection features, the initial payments may be lower, but they have the potential to increase over time, providing a hedge against inflation. - Costs and Fees:
Annuities may come with various fees, such as administrative fees, mortality and expense fees (for variable annuities), and surrender charges. These costs can impact the overall returns.
6) Can I customize the payout duration of my income annuity?
Answer: Yes, the payout duration can often be customized based on your preferences. Options include lifetime payments, a certain period, or a combination of both.
Questions?
Speak with a licensed professional to learn more about how Income Annuities can provide income throughout retirement.
