What is an Income Annuity?
Income annuities go by many names. Perhaps you have heard them called SPIAs, immediate annuities or payout annuities. An income annuity is one of the most popular choices for funding retirement income. It provides you with a secure way to insure that the money you are saving for your retirement will provide you with an actual retirement income. An income annuity is good insurance to make sure that you don’t outlive your retirement savings.
To get an income annuity, you contribute a single sum of money and in return you are guaranteed a steady flow of cash when you retire. You can get this retirement income for the rest of your life or a certain specified time limit, depending on which type of income annuity payout option you choose.
How Long Do Income Annuities Last?
The length of payment on your income annuity can be customized to fit your individual needs. You can choose a payout option that continues for the length of your life, a certain period of time, or even a combination of the two.
When you choose to have a lifetime payout option, your income annuity will give you periodic payments for the rest of your life. Social security is a good example of this kind of payout. You pay into social security and then when you retire, you can expect to receive a social security check each month, for the rest of your life.
Some people choose to have a specified payout time. For example you could choose to receive larger payments for only ten years. You can even combine the two payout options so that you receive payments for an agreed upon length of time or your lifetime, depending on which lasts longer.
What is the difference between fixed or variable payments?
You can choose for your income annuities to be fixed or variable. When you choose to have fixed payments, the amount that you receive will be consistent. When you choose variable payments, you are in charge of the investments that generate your income, so depending on what you choose to invest in, your payments will vary. While this can help you to budget according to inflation rates, it can be a little risky if you invest in things that fluctuate.
How Do You Purchase an Income Annuity?
Purchasing an income annuity is easy. You simply make a single premium payment and start receiving income payments immediately. If you prefer, you can have your first income payment deferred for up to one year, allowing your interest to be reinvested.
You can purchase your annuity with qualified (pre-tax) or non qualified dollars.
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