You Can Start Income, Transfer Wealth, or Protect Your Future—but You Must Choose Wisely
Scenario
At age 70, your annuity has likely grown for years. Now it’s decision time. Whether you need income, want to protect your estate, or fund long-term care, the way you handle your annuity now will shape your retirement and legacy. Here’s what you can do—and the one powerful option most people overlook.
1. Start Lifetime Income with a Guaranteed Lifetime Withdrawal Benefit (GLWB)
Key stat: GLWB payouts range from 5% to 8% depending on your age and contract.
A GLWB allows you to withdraw a guaranteed income for life, even after the annuity is depleted. Starting at age 70 maximizes your payout rate while protecting against longevity and market risk.
✔ Income lasts as long as you do—even if the account hits zero
✔ Offers growth potential if tied to a fixed index annuity
✘ Can’t increase or stop withdrawals once started
✘ Lower flexibility compared to managing your own withdrawals
Who Needs It: Retirees who want secure income without touching the market.
Who Doesn’t: Those with surplus income from Social Security, pensions, or investments.
Also Consider: A fixed index annuity with a GLWB for income and growth tied to index performance.
2. Annuitize the Contract for Max Monthly Income
Key stat: Annuitization typically yields more monthly income than a GLWB.
Annuitization converts your annuity into an irrevocable stream of income. You give up access to the lump sum, but in exchange, you get higher payouts and the option to structure income over one or two lives.
✔ Maximum monthly payout available from the contract
✔ Can include joint life or period certain to protect spouses or heirs
✘ Irrevocable—you lose access to your principal
✘ Little to no death benefit unless a rider is added
Who Needs It: Retirees with no legacy plans and high-income needs.
Who Doesn’t: Those who want flexibility or to leave money to heirs.
Helpful Add-on: Life with Period Certain protects payouts if you pass away early.
3. Use the Annuity to Fund Long-Term Care Insurance or a Long-Term Care Annuity
Key stat: A long-term care annuity can double or triple your annuity value for care costs.
You can use your annuity to fund a long-term care annuity (hybrid policy) or buy traditional long-term care insurance. These options help cover nursing home, home care, and assisted living expenses—without dipping into your other assets.
✔ Provides tax-free benefits for qualified long-term care
✔ Protects against high out-of-pocket care expenses
✘ May require medical underwriting, depending on the option
✘ Using your annuity reduces available retirement income
Who Needs It: Anyone without existing LTC coverage or a care plan in place.
Who Doesn’t: Those with comprehensive long-term care coverage already in place.
Helpful Add-on: Choose a policy with inflation protection to keep up with rising care costs.
4. Take Required Minimum Distributions (RMDs) Only
Key stat: RMDs are required at age 73 if the annuity is inside an IRA.
If your annuity is tax-qualified (IRA, 403(b), etc.), the IRS requires you to begin withdrawals at age 73. This ensures the government eventually collects taxes on the deferred growth. The RMD amount changes yearly and must be calculated accurately.
✔ Avoids IRS penalties (25% of the amount you should have taken)
✔ Keeps the rest of your annuity growing tax-deferred
✘ Increases taxable income
✘ Doesn’t guarantee income for life unless paired with a GLWB
Who Needs It: Owners of IRA annuities age 73+
Who Doesn’t: Those with non-qualified annuities (no RMDs required)
Helpful Add-on: A QLAC (Qualified Longevity Annuity Contract) lets you defer income past age 73 and reduce RMDs.
5. Surrender the Annuity for a Lump Sum and Reinvest
Key stat: Most annuities have no surrender charge after 7–10 years.
If the contract no longer fits your goals, you can cash out and use the funds elsewhere—such as reinvesting in a different annuity, purchasing LTC coverage, or moving to a brokerage account. Be cautious of the tax impact on gains.
✔ Full access to your money
✔ Flexible reinvestment choices
✘ Gains are taxed as ordinary income
✘ No guaranteed income unless you reinvest in a new annuity
Who Needs It: People who want control or a better product
Who Doesn’t: Those who prefer a stable, guaranteed income
Also Consider: Use a 1035 exchange to move tax-deferred gains into a new annuity or hybrid long-term care annuity with no immediate tax hit.
6. Leave It to Your Heirs as Part of Your Estate Plan
Key stat: Beneficiaries must deplete inherited qualified annuities within 10 years.
If you don’t need the annuity for income, you can pass it on to loved ones. With non-qualified annuities, only the gains are taxed at ordinary income rates. For IRAs, the SECURE Act limits the stretch to 10 years, so planning is key.
✔ Avoids probate and provides a tax-efficient inheritance
✔ Some contracts offer enhanced death benefits
✘ Beneficiaries may face high taxes if gains are large
✘ No income benefit for you
Who Needs It: Individuals with a stable retirement income and legacy goals
Who Doesn’t: Those relying on the annuity for day-to-day living
Helpful Add-on: Add a death benefit rider to lock in more value for your beneficiaries.
Other Insurance Options to Enhance This Strategy
- Life Insurance: Helps offset taxes your heirs will owe from inherited annuities.
- Long-Term Care Insurance: Covers high care costs so your annuity income isn’t drained.
- Deferred Income Annuity or QLAC: Delay income until later years for higher payouts and tax deferral.
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At age 70, your annuity isn’t just a savings account—it’s a powerful retirement tool. You can turn it into lifelong income, fund care needs, or leave a legacy. Don’t wait too long to act. The right move now protects you later.
Contact The Annuity Expert for free quotes and personalized comparisons to make the most of your annuity today. There’s no obligation—just smart planning.
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Questions From Our Readers
Do seniors pay taxes on annuities?
Seniors do pay taxes on annuities, specifically on the earnings portion of withdrawals or regular payments. The amount taxed depends on the type of annuity and distribution method. Tax-deferred growth is common, but eventual withdrawals are subject to income tax.
What do I do with an annuity that has matured?
For a matured annuity, you generally have options like annuitizing for regular income, opting for a lump-sum withdrawal, or rolling it into another investment vehicle. Tax implications and fees may apply. Consult a financial advisor for personalized advice tailored to your needs.