Income Annuities

We typically recommend people shy away from investments promising any type of "guarantee." However, income annuities (sometimes referred to as "immediate annuities" or "deferred income annuities," depending on when income payments begin) do offer a predictable guaranteed stream of income that you can't outlive. As with any investment, though, there are trade-offs.

With an income annuity, you give the insurance company a lump sum in exchange for a guaranteed stream of income. Once the money is given to the insurance company, you generally no longer have access to it. Therefore, income annuities are usually best suited for investors who want to maximize their income.

5 key features to consider with an income annuity

1. Income payments - Generally, these remain level over time, and they can begin immediately or two to seven but no more than 10 years in the future.

2. Flexibility - Generally, these remain level over time, and they can begin immediately or two to seven but no more than 10 years in the future.

3. Taxes - Some income annuities may offer tax-advantaged income when payments are considered part return of principal and part interest.

4. Income payment options - You or your beneficiary can receive income payments throughout your life or for a set period of time. Depending on the income payment option you select, your beneficiary may receive a death benefit should you pass away.

5. Fees & expenses - While there are not specific fees or expenses taken out of the income payments you receive, the insurance company does factor fees and expenses into the income payment. Fees and expenses generally cover the insurance company’s administrative expenses, the cost of offering income payments for life or for the chosen period, and profits to the insurance company and agent.