What Are the Different Types of Annuity Payments?

Annuity payments generally fall into three broad categories:

• lifetime income
• period-certain payments
• interest payments

Those payment types can be structured in different ways depending on the annuity and your financial goal.

The first step is determining what kind of income you actually need and how long you need it to last.

Key Takeaways

• Lifetime income can continue for as long as you live.
• Joint-life income can continue for as long as either covered person is alive.
• Period-certain payments continue for a defined number of years.
• Lifetime income can be combined with a period-certain guarantee.
• MYGAs can provide interest payments during the contract term.
• MYGA interest payments are not lifetime income.

Lifetime Income Payments

Lifetime income is one of the most familiar annuity payment structures.

These payments can come from:

• Single Premium Immediate Annuities
• Deferred Income Annuities
• QLACs
• Income Riders

The insurance company contractually agrees to continue paying for as long as the covered person is alive.

How Often Can Lifetime Income Be Paid?

Most people choose monthly payments because retirement expenses are generally monthly.

However, lifetime income may also be structured as:

• quarterly
• semi-annual
• annual

The frequency does not change the basic lifetime guarantee.

Joint-Life Payments

Lifetime income can also cover two people.

A joint-life annuity continues payments for as long as either covered person is alive.

This is commonly used by married couples who want the retirement income to continue after the first spouse dies.

Single-Life vs. Joint-Life Income

Single-life income is based on one person's life expectancy.

Joint-life income is based on two lives.

Because the insurance company may have to continue payments for a longer period under a joint-life structure, the initial payment is generally lower than a comparable single-life payout.

Period-Certain Payments

A period-certain annuity pays for a specified number of years.

For example, you might structure payments for:

• 10 years
• 15 years
• 20 years
• 30 years

The payments continue for that defined period regardless of whether they are being used as part of a lifetime income strategy.

Combining Lifetime Income With Period Certain

You can also combine lifetime income with a period-certain guarantee.

For example, life with 20 years certain means the income continues for life, but at least 20 years of payments are guaranteed.

If the annuitant dies after four years, the beneficiary could receive the remaining 16 years of payments.

If the annuitant lives beyond 20 years, the lifetime income continues.

Why Period Certain Can Help Beneficiaries

A period-certain structure creates a minimum payment period.

That can help someone who wants lifetime income but is concerned about dying shortly after payments begin.

The beneficiary protection comes with a trade-off because adding guarantees can reduce the initial payment.

MYGA Interest Payments

Another type of annuity payment comes from a Multi-Year Guarantee Annuity.

A MYGA provides a guaranteed interest rate for a specified contract term.

Depending on the contract, you may be able to withdraw the interest instead of allowing it to compound.

How MYGA Interest Payments Work

Suppose you place money into a MYGA and choose to withdraw the contractual interest.

The interest can potentially be paid:

• monthly
• quarterly
• semi-annually
• annually

At the end of the MYGA term, your original principal may still remain in the contract if you have only been withdrawing the interest, subject to the policy terms.

MYGA Interest Is Not Lifetime Income

This distinction matters.

MYGA interest payments continue only while the MYGA contract and available interest support them.

They are not a lifetime income guarantee.

If you purchase a 10-year MYGA and withdraw interest for 10 years, the original contractual term ends after those 10 years.

At that point, you need to decide what to do next.

What Happens When a MYGA Ends?

When the MYGA reaches the end of its term, you may consider:

• moving to another MYGA
• taking the money
• transferring the funds
• using some or all of the assets for lifetime income

The appropriate choice depends on your financial needs at that time.

Deferred Income Can Be Customized

Deferred Income Annuities can also be used for very specific income needs.

For example, you may need income to begin six years from now and continue for only ten years.

A DIA can potentially be structured around that specific gap.

That kind of design can help fill a temporary retirement income need.

Three Main Payment Categories

At a high level, annuity payments can be simplified into three categories:

1. Lifetime income
2. Period-certain payments
3. Interest payments

Lifetime and period-certain structures can also be combined.

That makes annuity income more customizable than many people realize.

Fixed Index Annuity Returns Are Different

Do not confuse potential indexed interest with a contractual payment guarantee.

Fixed Index Annuity returns are not guaranteed.

The index side of the contract should not be treated the same way as a guaranteed MYGA interest payment or contractual lifetime income stream.

Income Riders

Income Riders attached to deferred annuities can provide lifetime income.

The underlying account value and the rider's income calculation are different.

When evaluating an Income Rider, focus on the contractual income amount the rider provides rather than hypothetical index performance.

The Income Floor

Lifetime annuity payments can help build a retirement income floor.

That floor may include:

• Social Security
• pension income
• annuity income
• other dependable sources

Once the income floor covers the expenses you want guaranteed, other assets can be managed separately.

Ask Two Questions

Before selecting an annuity payment type, ask:

What do you want the money to contractually do?

When do you want those contractual guarantees to start?

If you need income for life, compare lifetime products.

If you only need income for a certain period, compare period-certain options.

If you want principal protection while taking interest, compare MYGAs.

Where to Compare Annuity Payments

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

You can evaluate lifetime income, future income, joint-life structures, and other payout options based on your specific needs.

The Bottom Line

The three primary types of annuity payments are lifetime income, period-certain payments, and interest payments.

Lifetime income can continue for as long as you live.

Period-certain payments continue for a specific number of years.

MYGA interest payments provide contractual interest during the term but are not lifetime guarantees.

The right payment structure depends on how long you need the income and what financial problem you are trying to solve.

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