In today’s world, people are living longer lives than they ever have before – and that is a very good thing. It means that they can spend more time in retirement enjoying the things that they love to do such as traveling, playing golf, and even just relaxing. But these longer life spans can also have a major drawback in that people must make their savings last for a much longer period, and unfortunately, that’s extremely difficult to do given all of the obstacles that they’re up against.
For example, over the past decade or so, market volatility has made it such that it is difficult to keep savings protected. Even if gains are made, a slight market “correction” can quickly take them away – and then some.
In the past, many retirees could also count on a defined benefit pension plan from their employer. This type of pension plan would provide an ongoing income stream, typically for the remainder of the employee / retiree’s lifetime – regardless of how long he or she lived. Then, even after the retiree passed away, often their surviving spouse could continue receiving some or all of the pension income.
Unfortunately, due in large part to the substantial expense of keeping these defined benefit plans in force, most employers have done away with them and replaced them with defined contribution retirement plans – the most popular of which is known as the 401(k).
Although there are many nice benefits to being involved in a 401(k) plan, the responsibility of having enough income in retirement in this type of plan falls entirely to the employee, not the employer. Therefore, if the underlying investments inside of the 401(k) plan happen to perform poorly, then it is possible that the employee will either have to continue working, or drastically cut his or her future lifestyle to conform to a lower income.
Also, many retirees today are not able to count entirely on Social Security benefits either. While these benefits can be a nice supplement to income that is received from savings or other sources, Social Security was never intended to fully replace the income that you earned from your employment.
In fact, according to the Social Security Administration itself, “Social Security was never meant to be the only source of income for people when they retire. Social Security replaces about 40 percent of an average wage earner’s income after retiring, and most financial advisors say retirees will need 70 percent or more of pre-retirement earnings to live comfortably. To have a comfortable retirement, Americans need more than Social Security. They also need private pensions, savings, and investments.”1
The Guaranteed Income for Life Solution
In coming up with a way to obtain income for life, today people have had to turn to alternate solutions. One way to do so is by purchasing an annuity. This is because an annuity is the only financial vehicle that can offer the guarantee of a steady, ongoing, lifetime income – regardless of how long a person lives – no matter what occurs in the market, with interest rates, or even in the economy overall.
An annuity is an insurance product that is essentially a contract between the insurance carrier and an individual. These products have been in existence since the time of Caesar, and they have gradually evolved into the vehicles that they are today.
Because annuities are insurance products, they can offer the guarantees that they do. In many ways, annuities can be considered as being the “opposite” of life insurance. This is because life insurance insures someone from dying too soon while an annuity can insure someone from “living too long” by ensuring that they have ongoing income.
When Can You Receive Your Annuity Income
When you own an annuity, you can either receive your income immediately or at a time in the future. This is because there are several different types of annuities. If you opt to purchase an immediate annuity, you can fund the annuity with a lump sum of cash – either from personal savings or from a “rollover” from a retirement account such as a 401(k) or an IRA account.
You can then choose to start receiving income from the annuity right away, or within a very short period after obtaining the annuity, such as within six months. You can choose to receive the income monthly, or in a number of other intervals.
The way that you are taxed on the withdrawals will depend on how you made your deposit. For example, if your deposit came from personal savings, then a portion of your income withdrawals will be considered original basis and will not be taxed. Another portion of the income withdrawal will be considered as taxable gain.
If, however, your annuity deposit consisted of funds that were rolled over from a 401(k) or a traditional IRA where your originally deposited funds had been deferred from your income, and then 100% of your withdrawals will be taxed as income. This is because none of these funds have been taxed in the past.
Alternatively, if you decide to receive your annuity income in the future, you will instead purchase a deferred annuity. With this type of annuity, you can deposit funds either in one lump sum and / or as deposits over time.
The funds that are inside of the deferred annuity are allowed to grow tax-deferred. This means that there is no tax that will be due on the gain that occurs inside of the annuity account until the time of withdrawal.
In the future, when you decide to start withdrawing the income from the annuity, if the funds that you deposited came from personal savings, then a portion of your income withdrawals will be untaxed as original deposited basis. Another portion of your withdrawals will be considered as taxable gain and will be taxed as ordinary income.
Income for You and For Others
In addition to supplying income for just the annuity holder, many annuities will offer the ability to add an additional individual as an income recipient to the annuity in order to also receive lifetime income from the contract as well.
Here, by choosing the joint lifetime income option, you could add a spouse, partner, or any other person of your choosing to also receive a stream of guaranteed lifetime income for the remainder of his or her life as well.
Additional Annuity Income Options
In addition to the guaranteed lifetime income option with annuities, there are other options for receiving income from an annuity. For example, you can choose to only receive income for a set number of years. Doing so can net you a higher payout amount regarding dollars received. Some of the other income options that are available on annuities can include the following:
- Period Certain – If you choose to go with the period certain income option, then the annuity will pay out a regular income payment for a set number of years, regardless of how long you may live. After the number of years has passed, however, the annuity will make no more income payments to you. Should you happen to pass away before the number of years has elapsed, the annuity will make the income payments to a beneficiary that you have named until the amount of time is up.
- Life with Period Certain – The life with period certain option combines the period certain with the lifetime income option. Therefore, this will offer income payments for the rest of your lifetime. However, if you happen to pass away not long after the income payout begins, then a beneficiary that you have named will continue to receive income payments from the annuity for at least a set number of years.
- Lump Sum – Instead of receiving regular income payments, you can also decide to simply cash out of the annuity and take a lump sum of cash. This is not necessarily suggested, however, as it can have adverse tax consequences.
Adding Additional Customization to Your Annuity Income Payout
In addition to just having an income for life, there are ways in which you can further “customize” some types of annuities in order to better fit the annuity to your specific needs and goals.
For example, with fixed indexed annuities, there are various income riders that can provide various advantages such as:
- The choice as to when you can turn on income withdrawals
- A choice between guaranteed level lifetime income or guaranteed lifetime income with potential to increase it over time
- A set amount of guaranteed lifetime income without requiring annualization when the income withdrawals begin
- The ability to start and stop income as the annuity holder’s needs change
How to Find the Best Rates on Income Annuities
When seeking the best rates on income annuities, it is best to work with a company or an agency that works with numerous annuity carriers. This is because not all annuities are exactly alike – and you will want to compare the various benefits, in an unbiased manner, prior to moving forward with the one that you ultimately choose.
If you are ready to move forward, we can help. We work with many of the top annuity carriers in the marketplace today, and we can assist you with obtaining all of the important details that you will need for making a more informed purchase decision. When you are ready to proceed, all you have to do is just simply filling in the quote form on this page.
Should you find that you have any additional questions regarding how to get guaranteed income for life – or even if you just have a question about annuities in general – our experts are happy to assist you. We can be reached by phone directly, toll-free, by dialing 800-376-0824.
We understand that there are a lot of variables involved when purchasing an annuity. That’s why we want to ensure that you have the most information possible before you make your final choice. So, contact us today – we’re here to help.
- Social Security Administration. Social Security. Understanding the Benefits. 2015. (https://www.socialsecurity.gov/pubs/EN-05-10024.pdf)