Understanding How Annuity Payments Work and Whether They Can Run Out
One of the biggest fears for Americans planning their financial future is running out of money. Annuities were created to solve this problem, but the details matter. Some annuities guarantee lifetime income, while others only last for a fixed period. This master guide combines everything you need to know about whether an annuity can run out, what happens if you live longer than expected, and which payment options are right for you.
How Long Does an Annuity Last?
- Immediate Annuities (SPIAs and DIAs): Begin paying right away (SPIA) or at a future date (DIA). You can choose lifetime payments or a fixed term.
- Deferred Annuities (Fixed, Indexed, Variable): Grow during the accumulation phase. You can later take withdrawals, add a Guaranteed Lifetime Withdrawal Benefit (GLWB) rider, or annuitize to guarantee lifetime income. Without these options, money can run out.
Types of Annuity Payouts
There are two ways to receive annuity payments for life: annuitization or lifetime withdrawals.
- Annuitization: You give the insurance company a lump sum of money, and they agree to make periodic payments to you for as long as you live. This payment method is irrevocable, meaning you cannot change your mind and get your money back.
- Lifetime Withdrawals: You purchase a deferred annuity with a lifetime income rider, typically at an additional cost. This rider allows you to withdraw from your account while guaranteeing that you will receive payments for life, even if the account balance runs out.
Annuitization vs. GLWB Riders
Both options prevent you from outliving your money, but they operate differently:
| Feature | Annuitization | GLWB Rider |
|---|---|---|
| How It Works | Permanently converts your annuity into fixed lifetime payments. | Guarantees lifetime withdrawals while keeping account access. |
| Flexibility | Irreversible. No changes once chosen. | Flexible. Can stop or restart withdrawals. |
| Liquidity | No access to principal. | Keeps account access for emergencies. |
| Death Benefit | Limited. Heirs may get nothing unless options are added. | Remaining balance passes to heirs. |
| Income Level | Typically higher monthly payouts. | Lower payouts but more flexibility. |
| Fees | No rider fees. | Rider fees reduce growth potential. |
| Best For | Highest payout seekers who don’t care about legacy. | Those wanting income + flexibility + inheritance protection. |
Key Takeaway:
- Annuitization gives the highest payout but no flexibility.
- GLWBs give lifetime income plus access and legacy protection.
Technical Note: Unlike annuitization, a GLWB keeps your money accessible. However, fees and withdrawals can eventually drain the account. Read our analysis of can an annuity run out of money to understand exactly how the insurance guarantee kicks in once your own capital is exhausted.
Lifetime Payments vs. Fixed-Period Payments
| Feature | Lifetime Payments | Fixed-Period Payments |
|---|---|---|
| How It Works | Pays as long as you live. | Pays for a set number of years (e.g., 10, 20). |
| Duration | Until death (or spouse’s, if joint). | Ends after the term, even if you live longer. |
| Can You Outlive It? | No. | Yes. Payments stop after the period. |
| Death Benefit | Ends at death unless you add joint/refund options. | Beneficiaries receive remaining payments until term ends. |
| Income Amount | Lower than fixed-period because it must last for life. | Higher because the term is capped. |
| Best For | People worried about outliving savings. | People covering short-term needs (mortgage, tuition, bridge to Social Security). |
Flow-Style Decision Guide
- ✅ I want income that lasts as long as I live.
- → Choose Lifetime Payments (via annuitization or GLWB).
- ✅ I only need income for a set number of years.
- → Choose Fixed-Period Payments.
- ✅ I want both.
- → Choose a Lifetime Annuity with a Period-Certain Rider (guarantees income for life but also ensures a minimum term).
Pros and Cons of Lifetime Annuities
Pros:
- Contractually guaranteed income for life.
- Eliminates the risk of outliving savings.
- Options for joint life and survivor benefits.
Cons:
- Less liquidity once payments start.
- Annuitization is irreversible.
- Without refund/joint options, heirs may get little to nothing.
Who Needs Lifetime Annuities and Who Doesn’t
- Who Needs Them:
- Retirees without pensions.
- People worried about running out of money.
- Spouses who need survivor protection.
- Younger individuals need early SPIA income (paired with life insurance).
- Who Doesn’t Need Them:
- Wealthy individuals with secure income streams.
- Investors who prefer full liquidity and growth.
Final Takeaway
An annuity can either expire after a set period or last for life. The choice depends on your needs:
- If you want income security for life, pick lifetime payments through annuitization or a GLWB rider.
- If you want higher income for a temporary need, pick fixed-period payments.
For the best outcome, it’s critical to compare both options side by side. Contact The Annuity Expert for free quotes and a personalized analysis to see how much lifetime income you could receive.
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Questions From Our Readers
Do annuities expire?
Annuities do not expire as they are designed to provide a steady stream of income for a specific period of life. However, some annuities may have contractually defined expiration dates, after which the payments stop. It is important to review the terms and conditions of an annuity contract to understand its specific provisions.
What happens if you outlive your annuity?
Some annuity payouts do not provide an income for life but rather a fixed period. If you outlive your annuity, you will not receive any more payments. This is one of the risks of annuities. Before you purchase an annuity, understand all the risks and benefits.
How do you get lifetime annuities?
You can purchase a lifetime income annuity from an independent licensed agent.
How much does a lifetime annuity cost?
Lifetime annuities can vary in cost depending on several factors, including age, health, and the type of annuity. Request a quote today to see how much a lifetime annuity would cost.
Can an annuity run out of money?
Yes, an annuity can run out of money if the payments exceed the funds within the annuity. This can happen if the annuitant lives longer than expected, or if the annuity is not managed properly. It is important to carefully plan and consider factors such as inflation, investment returns, and withdrawal rates to avoid running out of money.
How does an annuity work?
An annuity is a financial product that provides a regular income stream to an individual in exchange for an initial lump sum or series of payments. It works by investing the funds and then paying out a fixed sum over a predetermined period or for the rest of the person’s life. This ensures a steady income and can be a useful retirement strategy.
An annuitant is guaranteed not to outlive their benefits with what?
An annuitant is guaranteed not to outlive their benefits with a lifetime annuity. This can be provided through annuitization of the contract or by adding a guaranteed lifetime withdrawal benefit (GLWB) rider. Both options ensure income continues for as long as the annuitant lives, regardless of how long they live or whether the original account balance is depleted. The key difference is that annuitization is irreversible, while GLWBs allow more flexibility and often provide better legacy protection for beneficiaries.
Can you get out of an annuity?
Yes, but surrender charges and taxes may apply. For example, cashing out in year three may cost 7%.