Lifetime Income Annuity: You Should Sit Down for This

Thinking about retirement income that won’t dry up no matter how long you live? It’s time to look at lifetime income annuities. These aren’t trendy investments or get-rich strategies. They provide a guaranteed lifetime income.

Before brushing it off as too complex or “not for me,” sit down. This guide breaks down how these annuities work.

What Is a Guaranteed Lifetime Income Annuity?

A guaranteed lifetime income annuity is a contract that turns a lump sum of money into a lifetime stream of income. Think of it as buying your own personal pension.

You hand over a one-time payment or a series of payments, and in return, you receive a monthly check for life. The payments don’t stop, no matter how long you live. That’s the guarantee. It’s steady income.

There are two ways you can get annuity payments. Some annuities start paying right away (immediate annuities). Others delay payments to a future date (deferred annuities).

How Do Lifetime Income Annuities Work?

At the core, guaranteed lifetime income annuities are simple. You pay a lump sum, from your savings, retirement account, or rollover. In exchange, the insurance company guarantees a regular income for life.

Here’s the basic process:

• Step 1: You choose the type of annuity—immediate or deferred.
• Step 2: You decide whether to cover just your life or include a spouse.
• Step 3: You select options like a lifetime income rider, inflation protection, or period-certain payouts.
• Step 4: The insurer calculates your payment based on your age, investment amount, and options chosen.
• Step 5: Payments begin right away or at a future date you set.

The lifetime income rider is an add-on that locks in income growth. It’ll often come with a guaranteed percentage increase until you start withdrawing. Purchasing an annuity with a lifetime income rider can add flexibility and long-term value to the contract.

Because the insurance company backs up the payments, it's important to choose a financially strong provider. The money you receive depends on the contract terms and your longevity.

5 Features That Make These Annuities Stand Out

What sets lifetime income annuities apart from other retirement tools? It comes down to consistency, customization, and peace of mind.

They stand out because:

1. You get guaranteed monthly income. Payments continue for life, no matter how long you live. That stability is a major draw for retirees focused on long-term security.
2. You have market independence. Your income doesn’t fluctuate with the market. Whether stocks are up or down, your check stays the same.
3. You have customizable payout options. You can add f joint income for a spouse, or period-certain options that guarantee payments for a specific number of years. It works even if you die early.
4. You could purchase a lifetime income rider. These riders often include annual growth guarantees until withdrawals begin that locks in a higher payout.
5. You get more predictable retirement planning. Knowing exactly how much income you'll receive each month makes it easier to build a reliable budget in retirement.

Comparing Retirement Strategies: Lifetime Income Annuity vs Draw Down of Investments

When it comes to funding retirement, two common strategies stand out: buying a lifetime income annuity or using a drawdown approach from investment accounts. Each has its strengths, but they work in very different ways.

Drawdown of Investments

A drawdown involves regularly withdrawing money from retirement accounts like IRAs or 401ks. It gives you flexibility and control, but it also comes with uncertainty:

• Market losses can reduce your portfolio’s value.
• You need to manage withdrawal rates carefully to avoid running out of money.
• Income can vary year to year based on investment performance.

Lifetime Income Annuity

A guaranteed lifetime income annuity removes those variables:

• You get a fixed monthly income for life.
• There's no worry about market declines affecting your payouts.
• Planning is simpler because you have guaranteed income.

The Trade-Off

Drawdown strategies can offer more liquidity and potential for growth. Annuities offer certainty and long-term income security. For many retirees, combining both methods creates balance. Work with a financial advisor who can help you make the best decision.

5 Potential Drawbacks and Considerations

While lifetime income annuities offer stability, they’re not without downsides.

1. It has limited liquidity. Once you buy the annuity, your money is tied up. You can’t access the full amount if something changes. Some contracts allow partial withdrawals, but with restrictions and fees.
2. It may be irreversible. Once the terms are set and payments begin, you can’t go back and change your mind.
3. It can come with hefty fees. Optional features like lifetime income riders often come with extra costs. You need to deep dive into the fine print to understand what you’re paying for and what you’re getting in return.
4. It comes with inflation risk. Unless you choose inflation-adjusted payments, the fixed income may lose purchasing power over time. Your monthly check might feel smaller in 10 or 20 years.
5. It comes with provider risk. Your income is only as secure as the insurance company backing it. Choosing a financially strong, well-rated provider is non-negotiable.

Is It Worth Sitting Down For?

A lifetime income annuity can create lasting financial confidence with income you can’t outlive. Work with our expert team; we only partner with highly regarded insurance providers.

Get a free portfolio review today!

Stewart Willis is the founder and president of Asset Preservation Wealth & Tax, a financial planning firm in Phoenix, Arizona. Investment advisory services offered through Foundations Investment Advisors, LLC, an SEC registered investment adviser.

Any comments regarding safe and secure investments and guaranteed income streams refer only to fixed insurance products. They do not in any way refer to investment advisory products. Rates and guarantees provided by insurance products and annuities are subject to the financial strength of the issuing insurance company; not guaranteed by any bank or the FDIC.

The commentary on this blog reflects the personal opinions, viewpoints and analyses of the author, Stewart Willis, providing such comments, and should not be regarded as a description of advisory services provided by Foundations Investment Advisors, LLC (“Foundations”), an SEC registered investment adviser or performance returns of any Foundations client. The views reflected in the commentary are subject to change at any time without notice. Nothing on this website constitutes investment, legal or tax advice, performance data or any recommendation that any particular security, portfolio of securities, transaction or investment strategy is suitable for any specific person. Personal investment advice can only be rendered after the engagement of Foundations for services, execution of required documentation, including receipt of required disclosures. Any mention of a particular security and related performance data is not a recommendation to buy or sell that security. Foundations manages its clients’ accounts using a variety of investment techniques and strategies, which are not necessarily discussed in the commentary. Any statistical data or information obtained from or prepared by third party sources that Foundations deems reliable but in no way does Foundations guarantee the accuracy or completeness. Investments in securities involve the risk of loss. Any past performance is no guarantee of future results. Advisory services are only offered to clients or prospective clients where Foundations and its advisors are properly licensed or exempted. For more information, please go to https://adviserinfo.sec.gov and search by our firm name or by our CRD # 175083.

‍