Guaranteed Retirement Income Products

One of the biggest financial concerns in retirement is making sure your income lasts as long as you do.

That is where guaranteed retirement income products come in.

Annuities are the only financial product category designed to contractually provide lifetime income. Depending on the type of annuity and how it is structured, the income can continue for one life or two lives jointly.

There are four primary annuity solutions that can provide guaranteed lifetime income.

Key Takeaways

• Annuities can contractually provide income for life.
• The four primary lifetime income solutions are Immediate Annuities, Deferred Income Annuities, QLACs, and Income Riders.
• Lifetime income can be structured for one person or jointly for two people.
• Beneficiary protections can be added so unused money can pass to family.
• Life expectancy is a primary factor in determining lifetime income payments.
• For lifetime income, compare contractual guarantees across multiple carriers.

What Are Guaranteed Retirement Income Products?

Guaranteed retirement income products are designed to provide dependable income during retirement.

With annuities, that income can be guaranteed for as long as you live.

If the contract is structured jointly, the income can continue for as long as either person is alive.

That means the insurance company takes on the longevity risk of continuing to make payments even if you live much longer than expected.

The Four Types of Guaranteed Lifetime Income Annuities

There are four primary annuity types that can provide lifetime income.

They are:

• Single Premium Immediate Annuities
• Deferred Income Annuities
• Qualified Longevity Annuity Contracts
• Income Riders

Each solves the same basic problem in a different way.

The biggest differences are when income begins, what type of account is being used, and how the contract is structured.

Single Premium Immediate Annuities

A Single Premium Immediate Annuity, or SPIA, is generally used when you want guaranteed income to begin relatively soon.

If you need income to start within a year, a SPIA may be appropriate.

You provide a lump sum to the insurance company, and the company contractually guarantees an income stream based on the payout option you choose.

That can include:

• single-life income
• joint-life income
• period-certain payments
• beneficiary protections

The contract can be structured around your specific retirement income needs.

Deferred Income Annuities

A Deferred Income Annuity, or DIA, works similarly to an Immediate Annuity except the income begins later.

Instead of starting payments within a year, you defer the income into the future.

For example, you may want guaranteed lifetime income to begin three, five, or ten years from now.

A DIA allows you to establish that future income stream in advance.

Qualified Longevity Annuity Contracts

A Qualified Longevity Annuity Contract, or QLAC, is designed specifically for qualified retirement money.

QLACs are used with eligible retirement accounts such as traditional IRAs and similar qualified plans.

The purpose is to create guaranteed income beginning later in retirement.

A QLAC is another way to transfer longevity risk to an insurance company while using qualified retirement assets.

Income Riders

An Income Rider is an attached benefit that can provide guaranteed lifetime income from a deferred annuity.

Income Riders are commonly attached to Fixed Index Annuities.

In that situation, the underlying annuity serves as the delivery system for the contractual income guarantee.

The focus should be the lifetime income amount the rider contractually provides rather than the hypothetical accumulation of the underlying annuity.

How Is Guaranteed Retirement Income Priced?

The primary factor is life expectancy.

Interest rates matter, but life expectancy plays the larger role in determining lifetime income.

The older you are when income begins, the higher the payment will generally be because the insurance company expects to make payments for a shorter period.

That is similar to Social Security.

If you begin Social Security later, the monthly payment is higher because you are older when benefits begin.

What About Joint Lifetime Income?

Joint-life income covers two people.

A common example is a married couple who wants the income to continue after one spouse dies.

The payment is generally lower than a single-life payout because the insurance company may need to continue making payments for a longer period.

The trade-off is that income can continue uninterrupted and unchanged for the surviving spouse, depending on how the contract is structured.

What Happens to the Money When You Die?

A common misconception is that the annuity company automatically keeps the remaining money when you die.

That does not have to happen.

Lifetime income annuities can be structured with beneficiary protections.

That means unused contractual value can pass to your family or beneficiaries, depending on the payout option selected.

You can still receive lifetime income while including protections for the people you leave behind.

Which Accounts Can Be Used?

Different annuity types can be funded from different account types.

SPIAs, DIAs, and Income Riders can generally be used with:

• traditional IRA money
• Roth IRA money
• non-qualified assets

QLACs are specifically designed for qualified retirement accounts.

The appropriate account depends on your retirement plan and tax situation.

Why Financial Strength Matters

Lifetime income is a long-term commitment.

The insurance company may be responsible for making payments for decades.

That is why financial strength matters.

For lifetime income, the focus should be on appropriately rated carriers and the highest contractual income guarantee available for your specific situation.

Annuities Are Commodity Products

There is not one insurance company that is always best.

Carriers change their guarantees regularly.

One company may be the most competitive today and another may be stronger a week later.

That is why lifetime income should be quoted across multiple carriers.

The goal is not to choose a company because of the logo or brochure.

The goal is to identify the strongest contractual guarantee available when you are ready to move forward.

Start With Two Questions

Before comparing guaranteed retirement income products, answer:

What do you want the money to contractually do?

When do you want those contractual guarantees to start?

If the answer is lifetime income, the second question determines which annuity type should be considered.

Income starting within a year may point toward a SPIA.

Income beginning later may involve a DIA, QLAC, or Income Rider.

Where to Compare Guaranteed Retirement Income

Use our annuity calculators to compare contractual lifetime income guarantees from multiple insurance companies.

You can compare how much income a lump sum may generate or work backward from the monthly income amount you need to determine how much premium may be required.

The Bottom Line

Guaranteed retirement income products are designed to solve one specific problem: creating income that can continue for as long as you live.

Immediate Annuities, Deferred Income Annuities, QLACs, and Income Riders all provide different ways to establish that guarantee.

The right solution depends on when you need the income, which account you are using, whether the income covers one life or two, and which carrier currently provides the strongest contractual guarantee for your situation.

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