Guaranteed income for life
The payment continues for life even if the account runs dry. A second Social Security, built for you.
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The biggest worry in retirement is the money running out before you do. As lifespans lengthen, not knowing how long you will need it becomes the hardest part to plan. A lifetime income plan is the answer to that particular risk.
What it actually is
Beyond the traditional route of annuitizing the whole account, it is usually added as a rider to a growth product such as an index annuity. Carriers name it differently, but the goal is identical: an agreed payment for life, regardless of the market or whether the account itself is exhausted.
Planning gets simpler
You can fix or forecast the future payment at the outset, which makes budgeting for retirement a far clearer exercise.
Market cannot cut it
The guarantee is the carrier’s obligation. A poor run in the account does not reduce the amount you were promised.
It outlasts the account
Live longer than the money and the carrier keeps paying anyway. That is the whole point of it.
How the amount is calculated
Income Base × Payout Rate = lifetime income
The wording varies by carrier, the structure does not. Two numbers multiply, and that is your income.
The Income Base
The figure the income is calculated from. It is not the cash value and not what you would receive on surrender. It grows each year until income starts.
The Payout Rate
What percentage of that base is paid each year. It rises with the age at which you start, and a joint payout is a little lower than a single one.
What to compare between riders
- How the base grows A fixed roll-up rate each year, or index-linked with more upside? They behave very differently.
- How the payout rate is set Watch for a low payout rate hidden behind a headline bonus. Check the single and joint figures separately.
- Level or rising Fixed for life, or rising with inflation. Which is better depends on when you start and how long you expect to draw.
Income riders carry a cost, and the fine print differs widely between products.
Annuities
Types of annuities Sorted three ways (when it pays, what it is for, how it invests) the right one becomes obvious.
Immediate annuity Place a lump sum and income can begin the following month, then continue for life.
Fixed-rate annuity (MYGA) A guaranteed rate above a bank CD, growing your retirement money without market exposure.
Buying guide Four steps: settle the goal, compare the carriers, read the conditions, then decide.
Index annuity (FIA) Principal protected when the market falls, index-linked interest when it rises.