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Income AnnuitySPIALifetime IncomeQLACTurn savings into a paycheck for life.
An income annuity trades a lump sum for guaranteed payments that start now (an immediate annuity, or SPIA) or on a date you choose (a deferred income annuity). It is the closest thing to building your own pension.
What is an immediate annuity?
A single premium immediate annuity (SPIA) is the simplest annuity there is. You pay an insurance company one lump sum. It starts paying you a fixed amount, monthly, quarterly or yearly, beginning within a year and often the following month. Depending on the option you choose, payments last for a set number of years or for the rest of your life.
The payment amount depends on your age when you buy, interest rates at that moment, the payout option, the premium and, in most states, your sex. Buy at 70 and you get more per dollar than at 60, because payments are expected to last fewer years. Try your own numbers in our annuity payout calculator.
The trade-off is real: an income annuity is generally irrevocable. Once payments begin, the lump sum is gone, in exchange for income you cannot outlive. That is why it is usually funded with part of your savings, never all of it.
Predictable income
The same payment, on the same day, every period.
Lasts for life
Lifetime options keep paying however long you live.
No market risk
Payments do not change when markets move.
Simple
No caps, indexes or riders to manage.
Payout options: decide who is protected.
Every option is a trade between the size of the check and what happens if you die early. More guarantees mean a smaller monthly payment.
Life only
Pays for as long as you live, then stops. Nothing goes to heirs, even if you die in the first year.
- ✓Most income per dollar
- ✓Best for longevity in the family
- ✓Highest risk if health is poor
Life with period certain
Pays for life, with a guaranteed minimum period, such as 10 or 20 years. If you die early, a beneficiary receives the rest of that period.
- ✓Lifetime income
- ✓Protects against early death
- ✓Slightly lower payment
Joint and survivor
Pays as long as either of two people is alive, often a married couple. You can choose whether the survivor keeps 100% or a reduced amount.
- ✓Covers both spouses
- ✓Survivor never runs out
- ✓Lower payment than single life
Cash or installment refund
Pays for life, and if you die before receiving at least your premium back, a beneficiary gets the difference.
- ✓You never get back less than you paid in
- ✓Lifetime income
- ✓Lower payment than life only
Worried about inflation? Some contracts offer a fixed yearly increase. It starts lower and catches up over time.
The income floor: what an income annuity is for.
Retirement planners call it flooring. It is simple arithmetic, and it is the clearest way to see whether an income annuity has a job in your plan.
Add up the bills that must be paid.
Housing, food, utilities, insurance premiums, medications. The essentials, not the travel budget.
Subtract your guaranteed income.
Social Security plus any pension. These pay for life regardless of the market.
Whatever is left is the gap.
If guaranteed income already covers the essentials, you may not need an annuity at all. If it does not, that gap is what an income annuity is built to close.
Keep the rest of your savings flexible.
With the essentials covered for life, the rest of your money can stay invested or liquid for wants, emergencies and heirs.
Deferred income annuities and QLACs.
A deferred income annuity (DIA) works like a SPIA with a delay. You pay today, and income starts years later, at an age you choose. Because the insurer holds the money longer, each premium dollar buys more income than an immediate annuity bought at the same age. Some people use one as longevity insurance: a modest premium at 60 or 65 that pays a meaningful income starting at 80 or 85, so the late years are covered even if savings run thin.
A QLAC, or qualifying longevity annuity contract, is a deferred income annuity bought inside a traditional IRA or employer plan. The amount you put into it is left out of your required minimum distribution calculations until payments begin, which must be no later than age 85. There is a dollar limit, which the IRS adjusts for inflation; we confirm the current figure when we quote.
How income annuity payments are taxed.
If you bought the annuity with savings (non-qualified money), each payment is split: part is a tax-free return of your premium and part is taxable interest, under what the IRS calls the exclusion ratio. Once you have recovered your full premium, payments become fully taxable. If you bought it with IRA or 401(k) money, payments are generally taxable in full. More on how annuities are taxed.
Quick answers.
What is an immediate annuity?
An immediate annuity, or single premium immediate annuity (SPIA), is a contract where you pay an insurance company a lump sum and it starts paying you a fixed income within a year, often the following month. Payments can last for a set period or for life, and are backed by the claims-paying ability of the issuing insurer.
How much does a $100,000 annuity pay per month?
It depends on your age when you buy, interest rates at that moment, the payout option and, in most states, your sex. The same premium buys more monthly income at 75 than at 65, and a life-only payout pays more than one with a period certain or refund. Rates change often, so the honest answer is a live quote from several carriers on the day you ask. Our annuity payout calculator shows the arithmetic at a rate you choose.
What is the difference between an immediate and a deferred annuity?
An immediate annuity starts paying within a year of purchase. A deferred annuity waits: either it grows first and pays later (fixed and fixed indexed annuities), or, in the case of a deferred income annuity, it is bought now to pay a guaranteed income starting at a later age you choose.
What happens to an income annuity if I die early?
That depends on the payout option. Life-only payments stop at death. A period-certain option keeps paying a beneficiary for the rest of the guaranteed period, a refund option returns any premium you had not yet received, and a joint-and-survivor option keeps paying your spouse or partner.
Is a lifetime annuity worth it?
It is worth considering when your essential expenses are more than Social Security and any pension will cover, and you want that gap closed for life regardless of markets or how long you live. It is a poor fit if you need access to the money, if it would use most of your savings, or if serious health issues make a long retirement unlikely.
What is a QLAC?
A qualifying longevity annuity contract is a deferred income annuity bought with money in a traditional IRA or employer retirement plan. The amount you put in is excluded from required minimum distribution calculations until income starts, which must be no later than age 85, up to a dollar limit the IRS adjusts for inflation.
How are income annuity payments taxed?
Payments from an annuity bought with after-tax savings are partly a tax-free return of premium and partly taxable, until the premium has been fully recovered. Payments from an annuity bought with pre-tax IRA or 401(k) money are generally fully taxable as ordinary income.
Price your own pension.
Tell us your age, the amount you are considering and when you want income to start. We will quote several carriers side by side across the payout options, so you can see exactly what each guarantee costs in monthly income.
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Important: Annuities are insurance contracts, not bank deposits. They are not FDIC insured and are not guaranteed by any bank or government agency. Guarantees are backed by the financial strength and claims-paying ability of the issuing insurance company. Withdrawals above a contract's free amount during the surrender period may be subject to surrender charges and, on some contracts, a market value adjustment. Taxable amounts withdrawn before age 59½ may also be subject to a 10% IRS additional tax. Fixed indexed annuities are not a direct investment in the stock market or in any index. Products, features and availability vary by carrier and by state. iCoach Solutions offers fixed, fixed indexed and income annuities. We do not offer securities, including variable annuities, and we do not give investment, tax or legal advice: talk with a qualified tax professional about your own situation. This page is general education, not a recommendation.