What You Need to Know About Income Annuities

If you are retired or near retirement, you may be looking for ways to guard against outliving your savings. You may have heard about income annuities, but aren’t sure whether they are the right product for you. If you have questions, Kris Montgomery can help you find the answers. From fixed to variable, he can help you understand the variety of annuities available and decide whether you should add annuities to your financial plan. 

What Is An Income Annuity?

An income annuity is an immediate annuity – an annuity product that starts paying income immediately once they are funded by means of a lump sum payment. They are sometimes referred to as a “single-premium immediate annuity” (SPIA) or an “immediate payment annuity.” These are almost the exact opposite of a deferred annuity, where the premium is paid overtime, and the annuity begins paying income at some point in the future. 

Income payments can be made monthly, quarterly, semi-annually, or annually. Income annuities can also be fixed or variable, depending on the nature of the underlying investment. An experienced financial planner can work with you to find the right annuity product and understand exactly what it will provide. 

Income Annuities For Retirees

Income annuities are most attractive for those who will soon retire or are already retired. The goal of an income annuity is to provide a steady stream of income for the remainder of your life. Most annuities will pay income until the purchaser’s death, but there are annuities that will pay benefits to the surviving spouse, either in the form of regular income payments or a cash refund of the remaining balance due. 

People typically purchase income annuities for one or more of the following reasons: 

  • To replace their pre-retirement income
  • To pay their living expenses such as food, utilities, or mortgage<

As such, annuities can be a vital source of post-retirement income. However, you need to be mindful that income annuities aren’t liquid like a savings account. A financial planner can help you decide whether an income annuity makes sense for you. 

Fixed or Variable: What Annuity Type is Right for You?

If you have arrived at the decision to purchase an income annuity, the next decision to make is whether you should purchase a fixed or variable annuity. 

Variable annuities can pay a varying rate of return depending on the underlying portfolio of sub-accounts, similar to mutual funds. They offer the possibility of greater returns but also present more risk. For those in retirement, fixed annuities may seem like the better option. However, fixed annuities may lose value over time due to inflation or an increase in the cost of living or other expenses. A financial planner can help you understand how the advantages and disadvantages apply to your unique circumstances and guide you into the right annuity product. 

Considering an Income Annuity? Contact Alpha Crypto Consulting

Income annuities can pay tremendous benefits in the right situations, but they aren’t for everyone. In addition, it can be difficult to choose the right one. Alpha Crypto Consulting founder Kris Montgomery has over 10 years of experience in helping people prepare for retirement. We can review your goals, determine whether an income annuity is right for you, and explain the options right down to the fine print. Call or email us today to schedule a conversation.