Income Annuities

Shawn Plummer

CEO, The Annuity Expert

Income annuities are a form of insurance that pays out a set amount of money each year. They can be helpful for retirees who want to ensure a steady income stream or for people looking for a way to protect their assets from market fluctuations. Income annuities come in many different forms, and they offer several benefits. This guide will explore the different types of income annuities and the benefits they provide. We will also look at the drawbacks of these products so you can decide if an income annuity is right for you!

What Are Income Annuities?

An income annuity is an insurance product that can give you a stream of payments in retirement. Understanding how income annuities work is essential before deciding whether or not to purchase one.

When you buy an income annuity, you make a lump sum payment to the insurance company. In return, the insurance company agrees to pay you a certain monthly amount for the rest of your life.

The monthly payments are based on several factors, including your age, gender, and investment return assumptions.

  • One of the main advantages of income annuities is that they can provide a lifetime stream of income that you can’t outlive. This can be especially valuable if you’re worried about running out of money in retirement.
  • Another advantage is that income annuities can offer tax-deferred growth potential. As a result, your investment can grow without being subject to current income taxes (until you withdraw the income).

Income annuities also have some drawbacks to consider.

  • For example, once you make the initial investment, you generally don’t have access to your money until retirement. This can limit your ability to respond to unexpected expenses.
  • In addition, income annuities typically have high fees and expenses, which can affect your investment returns.

Before buying an income annuity, do your homework and understand the potential risks and rewards.

How Do Income Annuities Work?

If you’re nearing retirement and looking for ways to generate guaranteed retirement income, you may wonder how income annuities work. In short, an income annuity is an insurance product that can provide you with guaranteed lifetime income payments in retirement.

  • Annuitization: The term annuitization refers to turning your annuity contract into an irrevocable stream of payments. Once you start receiving payments, there is no option to turn them off.
  • Guaranteed Lifetime Withdrawals: Guaranteed lifetime withdrawals (GLW) are a type of retirement income product that provides retirees with a stream of payments guaranteed to last for their lifetime, no matter how long they live. Income payments can be turned on or off.

What Are The Types Of Income Annuities?

Income annuities come in two primary types: immediate and deferred

  • Immediate Annuities: With an immediate annuity, you begin receiving payments immediately or within one year of making your purchase. You make a lump sum payment to the annuity company, and they agree to make regular payments to you for a specified period or the rest of your life. 
  • Deferred Annuities: With a deferred annuity, you make periodic payments into the annuity, which grows tax-deferred. When you retire or reach a certain age, you can start taking distributions from the account and elect to receive them as either a lump sum or an income stream. 

What Are The Benefits?

Income annuities can offer several benefits, including: 

  • A guaranteed stream of income that you can’t outlive
  • Tax-deferred growth potential
  • The ability to provide for your spouse or other beneficiaries after your death 

What Are The Drawbacks?

Income annuities also have some drawbacks to consider, including: 

  • High fees and expenses
  • Limited access to your money once you make the initial investment
  • No opportunity for estate growth 

Before buying an income annuity, do your homework and understand the potential risks and rewards. Income annuities can be a valuable retirement planning tool, but they’re not suitable for everyone. 

Next Steps:

If you’re considering buying an income annuity, the best place to start is by contacting advisors experienced with all types of annuities. They can help you understand the pros and cons and decide whether an income annuity is right for you. Also, contact us today for a quote on how much money you could receive each month for the rest of your life. We would be happy to help!

What Is An Income Annuity? How Do Income Annuities Work?

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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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