What Is A Guaranteed Lifetime Income Annuity?

Shawn Plummer

CEO, The Annuity Expert

When planning for retirement, one of the pressing concerns we often face is ensuring we have a steady source of income that’ll last as long as we do. After all, everyone dreams of a comfortable and worry-free retirement. Enter the guaranteed lifetime income annuity, a financial product designed to address this concern. Let’s delve into what a guaranteed lifetime income annuity is and explore the salient features that could make it an enticing option for your retirement toolkit.

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Understanding the Basics: What is a Guaranteed Lifetime Income Annuity?

A guaranteed lifetime income annuity (GLIA) is a contract between an individual and an insurance company. In exchange for a lump sum payment or series of payments, the insurance company promises to provide a steady income stream for life.

Example: Imagine Sarah, a retiree. She opts for a GLIA and invests $100,000. In return, she receives a monthly payment for the rest of her life, ensuring she never outlives her savings.

The Allure of the Fixed Indexed Annuity

One type of GLIA is the fixed-indexed annuity. It offers potential interest earnings based on the performance of a stock market index. However, it also protects against market downturns.

Example: Consider John, who chooses a fixed indexed annuity. His annuity might earn more interest when the stock market index goes up. However, if the market drops, his principal remains protected.

Decoding Payout Structures: Level vs. Increasing Income Payout

  • Level Income Payout: This ensures consistent income throughout retirement, making budgeting more straightforward.
    • Example: If Lisa starts receiving $500 monthly today, she’ll continue receiving the same amount for life.
  • Increasing Income Payout: This option provides an annually increasing income, helping to combat inflation and increasing living costs.
    • Example: Mark begins with a payout of $450. With an increasing payout option, this amount may rise by a certain percentage each year.

Tailoring to Your Needs: Single Life vs. Joint Lives

  • Single Life: The annuity pays out for the lifespan of one individual.
    • Example: Emma, a single retiree, receives her annuity payout until passing.
  • Joint Lives: Designed for couples, it pays out as long as one of the two people is alive.
    • Example: Paul and Diana, a retired couple, opt for this. The annuity continues even if one passes on, ensuring the surviving partner receives continuous support.

The Assurance of Lump Sum Death Benefit

A significant feature of many GLIAs is the lump sum death benefit. Should the annuity holder pass away before breaking even on their investment, a beneficiary can receive a lump sum payment, ensuring the initial investment isn’t lost.

Example: If Tom invests $150,000 and receives payouts totaling only $50,000 before passing, his chosen beneficiary might receive the remaining $100,000.

Earning Potential: Fixed Interest Rate vs. Stock Market Index Performance

With GLIAs, one can:

  • Earn Interest Based on a Fixed Interest Rate: This offers predictability, as you know the rate in advance.
  • Earn Interest Based on the Stock Market Index: While riskier, this can lead to higher potential earnings. You’re not actually in the market. The insurance company uses the stock market index as a “measuring stick” to determine how much or how little interest you can earn in a given year.

Conclusion: Is a Guaranteed Lifetime Income Annuity Right for You?

A guaranteed lifetime income annuity is a potential safeguard against outliving one’s savings, providing peace of mind and financial security. By understanding its various facets, from fixed indexed annuities to payout structures and death benefits, you’re better positioned to decide if it aligns with your retirement goals. As always, it’s prudent to consult with a financial advisor to ensure your choice resonates with your broader financial plan.

Guaranteed Lifetime Income Annuity

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Frequently Asked Questions

Can a lifetime annuity run out of money?

A true lifetime annuity is designed to provide income for as long as you live, so it won’t run out of money. Payments continue until death, regardless of market conditions or how long you live.

Who is the beneficiary of a lifetime annuity?

The beneficiary of a lifetime annuity is usually a spouse or family member designated by the annuity owner. The beneficiary may receive any remaining payouts or death benefits upon the owner’s death, depending on the annuity contract terms.

Can you cash in a lifetime annuity?

Cashing in a lifetime annuity is generally not possible, as these contracts are designed to provide income for life. Some plans may offer limited liquidity options, but penalties and taxes usually apply.

Shawn Plummer

CEO, The Annuity Expert

I’m a licensed financial professional focusing on annuities and insurance for more than a decade. My former role was training financial advisors, including for a Fortune Global 500 insurance company. I’ve been featured in Time Magazine, Yahoo! Finance, MSN, SmartAsset, Entrepreneur, Bloomberg, The Simple Dollar, U.S. News and World Report, and Women’s Health Magazine.

The Annuity Expert is an online insurance agency servicing consumers across the United States. My goal is to help you take the guesswork out of retirement planning or find the best insurance coverage at the cheapest rates for you. 

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