Annuities
Income for life, on top of Social Security
Social Security and a pension, if you have one, pay you for as long as you live. An annuity can add a third source of income that works the same way. Many people use it to cover their essential bills, so the rest of their savings can stay invested or available.
Start with your income floor
Add up the bills you have to pay every month no matter what: housing, food, insurance, utilities, transportation. That's your floor. Then subtract what Social Security and any pension will pay. If there's a gap, lifetime income from an annuity can fill it, and the rest of your savings is free for everything else.
Two ways to get lifetime income
An income annuity
You trade a lump sum for guaranteed payments. With an immediate annuity, payments start within a year. With a deferred income annuity, they start at a date you choose, often several years out, and each payment is larger because you waited.
An income rider on a fixed index annuity
You keep an account value you can see and access, and the rider guarantees you can withdraw a set percentage each year for life, even if the account runs out. The rider has an annual fee, and withdrawals above the allowed amount reduce your future income.
| Income annuity | Income rider | |
|---|---|---|
| Access to your money | Generally none once payments start | Your remaining account value stays accessible |
| Income per dollar | Usually higher | Usually lower |
| Cost | Built into the payment amount | Annual rider fee, commonly around 1% |
| If you die early | Depends on the payout option you chose | Your beneficiaries receive the remaining account value |
Payout options
- Life only: the highest payment, and it stops when you die.
- Life with period certain: pays for life, and if you die within the period (say 10 years), your beneficiary receives the rest of the payments.
- Joint life: keeps paying as long as either you or your spouse is alive. Payments are lower than single life.
- Cash refund: if you die before receiving what you paid in, your beneficiary gets the difference.
Payment amounts depend on your age, the payout option and interest rates when you buy. Delaying the start date raises the payment.