Income Annuities

Written by James Lyons
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An income annuity is a financial product that you buy with a single lump sum of your savings. Much like Social Security and company pensions, income annuities provide people with a regular stream of income payments that persist for the rest of their lives, or a specified period of time. Given that it's the only product you can buy that provides a stream of retirement income for life, an income annuity can be an important component of an effective retirement income plan.

On the other hand, there exist far more lucrative options for people looking to better manage their personal wealth. While a fixed income annuity might be reliable, it's certainly not intelligent insofar as its ability to build on itself. If you currently have a fixed annuity, you should seriously consider cashing it out and investing your money more effectively

More on Income Annuities

The fundamental concept of income annuities is fairly straightforward: In return for a single lump-sum payment, an insurance company guarantees it will send you a check for the rest of your life or a designated period of time. The primary appeal of income annuities--the rationale many advisers use when suggesting these annuities--is that you cannot outlive your income. It's a constant income stream.

Annuities, however, pose distinct disadvantages, especially for retirees. With a number of income annuities, once you die, the income stream dries up and your legacy gets nothing. If I purchase an annuity tomorrow and die a year later, depending on the annuity, that money could be gone. Those of you with annuities right now might want to consult your nearest note broker to get some cash back in your pocket.


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