Many retirement plans do a great job helping you save, but retirement is about turning savings into a paycheck you can count on to live—one that holds steady no matter what season the markets are in. That’s where income annuities can help. They’re insurance contracts designed to convert a lump sum into predictable payments—often for life—so you can better handle two common retirement worries: market ups and downs and the possibility of outliving your money.
How an Income Annuity Works
Think of an income annuity like setting up a personal “pension.” You make a payment to an insurance company (often a single lump sum), and in return you receive a stream of payments. Those payments can start soon after you buy the annuity (immediate) or at a date you pick in the future (deferred). Your payment amount is based on things like your age, when income starts, current interest rates and any options you choose (such as continuing payments for a spouse or adding an inflation increase).
Common Ways People Use Annuities for Income
- Single Premium Immediate Annuity (SPIA): Turn a lump sum into income right away—often used to cover essential expenses. See below for sample payout rates.
- Fixed or indexed annuity with a Guaranteed Lifetime Withdrawal Benefit (GLWB) rider: Designed for people who want some access to principal while building a future income stream (features, fees and guarantees vary by contract).
Example: You want the option to take withdrawals later, but you also like having a lifetime-income backstop. - Variable annuity with an income rider (such as a Guaranteed Lifetime Withdrawal Benefit, or GLWB): Offers market-based growth potential through investment “subaccounts,” plus an optional rider (for a fee) that can provide a guaranteed level of lifetime withdrawals if you follow the contract rules.
Example: You want a chance to grow future income over time, but you also like knowing there’s a minimum lifetime withdrawal amount even if markets have a rough stretch.
When an Income Annuity Might Fit
- You’re coordinating with Social Security timing, using a deferred income stream to start later while you delay benefits.
- You want an “income floor” to help cover essential monthly bills regardless of market conditions.
- You don’t have a pension and want to create pension-like income.
Example: You like the idea of a steady check arriving each month, similar to a traditional pension. - You’re concerned about longevity risk (living longer than expected) and want income you can’t outlive.
- A predictable payment—a guaranteed monthly income payment can reduce the pressure to time withdrawals.
Potential Benefits and Tradeoffs
Benefits
- Guaranteed income for a set period or for life (depending on the contract). All annuity guarantees are backed by the claims-paying ability of the carrier.
- Protection from market swings for the portion allocated to a fixed-income annuity.
- Longevity protection—payments can continue even if you live longer than average.
- Budgeting confidence by creating a steady paycheck-like cash flow.
Tradeoffs
- Reduced liquidity: Many income annuities are difficult to unwind once purchased, and access to principal may be limited or unavailable.
- Inflation risk: A level payment may lose purchasing power over time
- Opportunity cost: Money used to buy a guaranteed payment stream may miss out on potential market growth.
- Insurer credit risk: Guarantees depend on the issuing insurance company’s claims-paying ability.
- Market risk and layered fees (often in variable annuities): If your annuity is invested in market-based options, the account value can rise or fall, and total costs may include insurance charges, investment management fees and optional rider fees. Over time, fees can reduce performance, so it’s important to understand what you’re paying for.
Bottom Line
Income-focused annuities can be a helpful way to turn part of your savings into a predictable “paycheck,” especially for covering essentials and protecting against living longer than expected. The main tradeoff is giving up some liquidity and flexibility, so many people find these products work best as one piece of a broader retirement plan—alongside Social Security, cash reserves and an investment portfolio. Your Benjamin F. Edwards advisor can help you analyze your situation to determine if an annuity fits in your situation.
Example: Single Premium Immediate Annuity guaranteed* lifetime payouts based on a $100,000 premium with income starting one month after contract is issued. Rates are subject to change.
*Sample Rates for the Athene Activate Single Premium Immediate Annuity. All product guarantees are subject to the claims-paying ability of the issuing carrier.
IMPORTANT DISCLOSURES: The information provided is based on internal and external sources that are considered reliable; however, the accuracy of this information is not guaranteed. This piece is intended to provide accurate information regarding the subject matter discussed. It is made available with the understanding that Benjamin F. Edwards is not engaged in rendering legal, accounting or tax preparation services. Specific questions on taxes or legal matters as they relate to your individual situation should be directed to your tax or legal professional.
5788060 – EXP: 07/31/2029