SPIAs … immediate annuities … payout annuities … income annuities …. No matter what you call them, they mean the same. Whatever the name, an income annuity is the only financial product that can ensure that you’ll have an income for as long as you live. Income annuities also have many other uses; however, they are frequently used as a solution for funding retirement.
With an income annuity, you can be certain that you’ll have a guaranteed income on a regular schedule1. How long the payments last depends upon the payout option that you select. Income payments can continue for:
- the life (or lives) of the annuitant(s),
- for a certain period of time, or
- for a combination of the two.
If you elect a lifetime payout option, an income annuity provides you with a stream of periodic income payments that continue for your lifetime. Two types of lifetime annuities that you are likely familiar with are Social Security and a company pension.
You can also select a payout option for a specific period of time (e.g. 10 years). Or, you can combine the payout options to guarantee that the payments will be made for a certain period of time or your lifetime, whichever is longer. An income annuity can help you manage the risk of outliving your assets.
Income annuities can be fixed or variable. Meaning, the payments you receive can be fixed, guaranteed to be consistent. However, you may choose to have payments increase by a set percentage each year. With a variable income annuity, you retain control over the investments that generate your income payments. Variable income annuities are designed to help you keep pace with inflation. However, depending upon your investment results, your payments may go up and down.
For a variable income annuity, all important information will be explained in the prospectus that describes the variable income annuity contract. Please read both the policy and underlying fund prospectuses, considering the funds' investment objectives, risks, charges and expenses carefully before investing.
To purchase an income annuity, you make a single, lump sum premium payment and the contract starts paying income payments right away. If you’d like, you can defer your first income payment for up to 12 months.
Income annuities can be purchased with either qualified (pretax) or nonqualified (after tax) dollars. You can transfer funds from an IRA, Roth IRA, or 401(k) or 403(b) account. Also, if you have an existing nonqualified deferred annuity or life insurance policy, you may transfer those accumulated funds to purchase an income annuity.
This special type of annuity can help you eliminate the concern of outliving your assets – while at the same time satisfying your required minimum distributions (RMDs) per Internal Revenue Service (IRS) guidelines. In addition, income annuities offer access to tax-deferred retirement assets prior to age 59 ½ without paying penalties to the IRS.2
Your circumstances are individual to you; we encourage you to contact a financial advisor to see how an income annuity might fit into your financial plan. To give you an idea of how they have helped others, we’ve provided a few example scenarios.
1 Guarantees based on the claims-paying ability of the insurance company.
2 Based on current tax law, a 10% Federal penalty tax may apply to distributions before age 59 ½.
