Key Takeaways
- Annuitization, Single Premium Immediate Annuities (SPIA) and Guaranteed Lifetime Income Riders (GLIR) provide avenues for guaranteed lifetime income.
- Annuitization offers a guaranteed income stream but sacrifices control, while SPIAs provide immediate income. Guaranteed Lifetime Income Riders offer flexibility while ensuring income security.
- Annuities offer solutions for longevity risk and healthcare costs, addressing key concerns for retirees.
Methods of Obtaining Guaranteed Lifetime Income With Annuities
There are three different methods, utilizing annuities, to obtain guaranteed lifetime single or joint income, as well as one method for leveraging annuities to double one’s income due to impairment.
Annuitization
Most annuities contain an annuitization benefit. When an annuity contract holder elects annuitization, they convert the value of their annuity into a guaranteed lifetime income stream. Once annuitization is elected, the contract holder cannot change their mind and has surrendered any future control of their asset in exchange for guaranteed lifetime income. In my professional opinion, this is the most restrictive method of income planning.
Single Premium Immediate Annuity (SPIA)
A Single Premium Annuity, or SPIA, is an annuity entirely based on the annuitization principle. With this annuity, income is typically activated one month after funding.
Immediate income annuities are designed with specific individuals in mind, such as clients who have no survivors. For example, consider a past client who was concerned about her health and the possibility of outliving her income. She had the necessary funds to purchase the annuity and receive immediate income, providing her with peace of mind that even if she lived past 90 years old, she would have enough to maintain her lifestyle. Additionally, she understood that she was giving up the principal, but this did not concern her since she had no dependents relying on her assets or future income.
Elaine King, MBA, CFP®, CDFA™, CFBA, ACCFounder of Family and Money Matters™Elaine King, CFP®, founder of Family and Money Matters™, empowers families’ financial and human capital for wellbeing. She’s crafted actionable plans for 1,200+ families and 100+ enterprises. A recognized financial education advocate, creator of LATAM’s first family financial program and winner of the Best Latin Book Award. Featured in top publications and honored by Investopedia and People Magazine.
Guaranteed Lifetime Income Rider (GLIR)
The most modern and flexible method of securing guaranteed lifetime income, while still maintaining control of the owner’s annuity asset, is by obtaining an annuity with a built-in guaranteed lifetime income rider.
In this type of annuity, the contract holder maintains the choice of when to activate either single or joint life guaranteed lifetime income. They can also opt to suspend income in the future or revert back to their principal account and transfer the annuity balance to another asset, usually after any applicable surrender periods.
Additionally, there are lifetime guaranteed income riders that include impairment doublers, operating similarly to traditional long-term care insurance benefits, with comparable triggers for eligibility.
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Frequently Asked Questions
Each method offers distinct approaches to securing guaranteed lifetime income with annuities, with varying levels of flexibility and control over assets.
Guaranteed Lifetime Income Riders provide a more flexible approach, allowing annuity holders to maintain control over their assets while still ensuring a steady income stream.
Considerations include your preferences for flexibility versus control, immediate versus deferred income and your overall retirement and financial goals.
The author drew upon personal experience in basic budgeting, income and retirement planning to craft this article, omitting formal references or footnotes.
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