Fixed and Fixed Indexed Annuities for Lifetime IncomeJanuary 2nd, 2013 by David Waring
An annuity can guarantee you lifetime income after you pay an initial premium. There are two main categories of annuities: fixed, fixed index, and variable. Both types of annuities can give you lifetime income, but different features and conditions apply depending on which annuity you choose.
A fixed annuity that provides regular income is called an immediate annuity or SPIA (Single Premium Immediate annuity).
An immediate fixed annuity will provide you a pre-determined (a fixed number of dollars) income per month. Fixed index annuities are similar in that they can provide a steady stream of income, but monthly payments are linked to a market index. If the index goes up, payments are bigger. If the index goes down, payments will be smaller (but not below a guaranteed minimum).
You can buy an annuity for one or two people, and with a “guaranteed period”:
- Single life annuity – payments are guaranteed to you for the rest of your life. If you are single and worried about your money lasting until you die, this type of annuity might meet your needs.
- Joint and survivor annuity – payments are guaranteed to continue for as long as one of you is alive. This type of annuity is often chosen by a married couple, for example. Payments are generally lower than for a single life annuity with the same premium.
- Guaranteed period – if you die before the end of a specified period, the monthly income payments continue to be made to your beneficiaries, until the end of the period. With this type of annuity, you or your spouse may outlive the payments. In effect, the main benefit of this type of annuity is convenience of receiving regular income payments without having to actively manage your money.
With all fixed and fixed index immediate annuities, its very difficult to withdraw money from the annuity once the monthly payment start.
One mistake people sometimes make with these types of annuities, is under calculating the amount of money that they will need to live. An amount of monthly income now that may cover your expenses, may not be enough ten years from now with inflation.
In part two of this series we will discuss how to get lifetime income from a variable annuity.