What is Income Annuity?

An income annuity, also known as Single Premium Immediate Annuity (SPIA), is a financial product designed to swap a lump sum amount for guaranteed periodic cash flow to generate monthly or annual payments.
An income annuity is a life insurance contract that is designed to start paying income as soon as the policy is initiated. Once funded, an income annuity is annuitized immediately, although the underlying income units may be in either fixed or variable investments.

WHY CAN Income Annuity YIELD BETTER THAN 4%?

  • An income annuity can help protect against the risk of outliving your savings. No matter how long you live, you will always have the security of knowing that you have a regular monthly income. The amount you receive each month is guaranteed, and payments will continue for as long as you live.
  • An income annuity is NOT an investment that provides you with a rate of return over a fixed period of time. Rather, it's an income product that provides you with fixed monthly income that is guaranteed for life and no matter how the markets perform. The total payout you receive from this income annuity will be largely determined by your own longevity. The longer you live, the more income you will receive.
As income annuity examples, the New York Life Guaranteed Future Income Annuity II and the New York Life Guaranteed Lifetime Income Annuity II offer a secure way to help guarantee that you have the retirement income for your entire life a shown below.

HOW TO INVEST IN Income Annuity BY YOURSELF?

  • An income, or immediate annuity, generally starts payment one month after the premium is paid and may continue for as long as the buyer is alive. This feature is especially suitable for retirees who are concerned about outliving their retirement savings.
  • Depending on the income annuity you decide to purchase, income payments can begin now or later. If you purchase a single premium immediate annuity, you’ll receive income within 12 months of purchase. You can begin to receive monthly or quarterly payments one month after purchase.
  • If you purchase a deferred income annuity, your payments will begin at any date of your choosing two to 40 years in the future. Just like a single premium immediate annuity, you can choose to receive your income payments monthly, quarterly, semi-annually, or annually.
  • It’s also possible to buy a fixed SPIA with a payout that adjusts upward each year in keeping with inflation. Naturally, inflation-adjusted fixed annuities require higher initial premiums than fixed annuities without an inflation adjustment.
  • Income Variable Annuity
  • Fixed Index Annuity​​
  • Defined-Outcome ETF
Annuity.org provides Financial Planning, Insurance and Retirement Resources.

Pros:

  • An income annuity is not subject to stock market performance. Regardless of the ups and downs of the financial markets, you can be confident that your annuity income is locked in and guaranteed. ​
  • With an income annuity you set aside a part of your assets to help cover future living expenses. Monthly income checks, should you choose this payment option, make it easier for you to stay on budget, and helps to ensure your basic needs such as food, housing, and health care are covered.

Cons:

  • Most annuities have a surrender period, during which you can’t withdraw entire money without incurring hefty fees. And once you choose to start receiving annuity payments from your investment, many companies will no longer let you withdraw more money from your account. So you’ll only have access to any annuity payments already scheduled.
  • Because the income from an annuity is backed by an insurance company, financial advisors and financial literature usually refer to it as “guaranteed.” But that doesn’t mean it’s a 100% sure-thing. Note that even if the issuer of your annuity does go bankrupt, you aren’t necessarily in trouble. Each state has a guaranty association funded by the insurance companies themselves that will step in to protect you to a certain limit if your insurance company goes insolvent.
  • In exchange for the guaranteed income and safety, you give up control of the money as well as the possibility of leaving the money to your heirs.