The Basics of Income Annuities

Income AnnuitiesAn income annuity is a lifetime income guarantee, purchased from an insurance company as a way to minimize the risk that you will run out of money after you’ve retired. Just like you insure your home or your car, you can ensure your longevity by forwarding the risk that you may outlive your savings to your insurance company.

If you are in or near retirement  and you don’t have enough in an IRA or 401K to last you through the rest of your life, an income annuity may be a good option. 

Income annuities allow you to use the money you have saved into a set stream of steady lifetime income payments. Once you’ve paid the premium amount, either as a lump-sum or in installments, you receive guaranteed checks at intervals decided by you, starting when you want them to – usually at or after retirement. These checks would be guaranteed by the insurance company whose services you are availing. In a sense, you can consider it to be similar to a pension that you are buying for yourself.

Although many think an annuity is an investment, it is actually a contract between you and an insurance company. Still, they are income products with fixed monthly income guaranteed for life, regardless of how long you live and how the market performs. The total payout you receive from income annuities depends solely on how long you live.

An advantage of an income annuity  is that it is not reliant on the stock market performance, and you can be confident that no matter how badly the market is doing, you will get receive an income. With this, you can also stay on budget and ensure your basic needs are covered while setting aside a part of your assets to cover future expenses when need be.

These annuities can start now or later, depending on what kind you purchase. Some can begin within 12 months of purchase if you are buying single premium immediate annuities, while deferred income annuities can start at any date you choose. You can also choose the intervals at which your payments are provided to you – monthly, quarterly, semi-annually, annually, etc.

Money used to purchase income annuities are usually locked into your contracts and can only be returned to you in the form of income payments. However, if you have retired, or are past the age of 59, you might be able to access future payments that can come in handy if you have an emergency.

There are usually no real restrictions on who can purchase annuities, though different types have different age preferences and tax qualifications. Age restrictions may exist depending on specific benefits that are selected on purchase.

Contact Peak Trust for more information about how we can help you with a guaranteed income for your retirement.