What is Annuity Income

An income annuity describes a type of contract made between an investor and an insurance company. This agreement converts either a part or all of a consumer’s savings into a guaranteed stream of income. This flow of money can last a specified number of years or an entire lifetime, depending on the agreement that was made. Annuity income is an investment tool most commonly used by those going into retirement. 

 

How Does an Annuity Income Work

The purpose of an annuity income is to provide income over an extended period of time. It takes a large sum of money and converts it into a flow of regular payments. These payments can be made monthly, quarterly, semi-annually, or even yearly, depending on your contract and the agreements made. All income annuities are tax-deferred, meaning the consumer won’t owe taxes until they have started receiving the annuity income payments. Keep in mind that there are different types of annuities, each with its own rules and regulations to understand. Many can provide guaranteed yield, market participation, investment flexibility, and legacy protections for your beneficiaries. Each annuity agreement will differ slightly, so understanding the difference can help you decide which is best for your retirement. These annuity contracts are also legal documents, so it’s very important to ask any questions you have about the agreement before signing. 

 

What other types of Annuities exist

There are various annuities, meaning you can choose which works best for your individual retirement and investment strategy. Each annuity offers different levels of flexibility, safety, and control, so keep in mind what is most important to you and what suits your needs the best.

There are three types of annuity income: Variable, fixed, and immediate. 

Variable annuities provide a variety of investment options to choose from to go along with the usual steady stream of income. It’s important to remember, however that variable annuity value can fall if your chosen investors aren’t doing well, so there is an element of risk involved. But on the other hand, variable annuities typically offer a tax-deferred growth potential so there is a chance for it to rise in value depending on how the investments you’ve chosen are performing. 

Fixed annuities, however, are for those who are a bit hesitant to deal with the possibility of stock market fluctuation. The downside is that this annuity income is not known for being the best at generating income during retirement. That being said, these annuities provide a fixed, guaranteed interest rate that is also tax-deferred. It’s a level of security that can offer support in the future.

Immediate annuities are also a popular form of annuity income. If you are wondering what annuity income is, this type of annuity is considered one of the most simple and basic forms of it. Like most other annuities, the investor makes one large sum of money that is converted into a steady flow of income for as long as the contract permits. The difference is that this money flow begins instantly with an immediate annuity, not at some future date. While this typically provides little interest rate and a risk of inflation, an immediate annuity can be used as a simple tool to begin receiving income right away.

 

When should I invest in an Income Annuity?

If you are looking for more ways to generate income during retirement, it could be the perfect time to start considering an income annuity. Investing in income annuities is personal and should be considered part of your overall retirement strategy. Many financial advisors will say that the best age for starting an income annuity is between 70-75 because it can allow for a maximum payout. If you are looking for financial protection and a reliable flow of income at this point in your retirement, it might be time to start considering an annuity income.

 

When Can I Expect Payments Once I Invest in an Income Annuity

Payment expectancy usually depends on whether you’ve decided to make your annuity an immediate or deferred agreement. What this means is you can customize your chosen income annuity to either provide income right away or at a later date. As the name suggests, choosing immediate annuities will cause your incoming payments to begin quickly, even within the same year. Deferred annuities can begin anytime from two to 40 years in the future. Immediate annuities can be a good choice if you are looking for a steady income stream quickly, while deferred annuities may be a better option if your retirement is still a few years away.

 

Why Should I Invest in an Income Annuity

Investing in an income annuity can be a big decision, so knowing just how useful it can be to your retirement plans is valuable. An annuity income can protect you from outliving for savings while providing you with a steady source of income during your retirement. They have the potential to be great investment tools as the fluctuations in the stock market have little effect on the payments given to you. Moreover, the contract can be customized to suit your needs and lifestyle. This can allow you to have more flexibility and security in your finances.

 

What are the Drawbacks to Income Annuities

Of course, income annuities aren’t without flaws of their own. First of all, it’s a long-term contract, and the fees that are linked with annuities are typically higher than other savings and investment options. This can make annuities a bit expensive for some consumers. Along with this, an income annuity can be a loss of control over your investments, depending on the contract. Keep these drawbacks in mind when deciding for yourself if income annuities are right for you.

 

Conclusion

What is annuity income? It’s an investment tool that can provide you with a steady stream of income during your retirement. While they do have many strengths and weaknesses, choosing whether one is right for your retirement goals is up to you. If you need help deciding if an income annuity is right for you, look no further than Oxford Advisory. We are a team of financial professionals that strive to help individuals and families reach their dream retirement. Call us at 407-495-2004 today or visit our website at https://oxfordadvisorygroup.com/financial-services/annuities/ to learn more.

 

 

This report was prepared by Oxford Wealth Group, LLC, a federally registered investment adviser under the Investment Advisers Act of 1940. Registration as an investment adviser does not imply a certain level of skill or training. The oral and written communications of an adviser provide you with information about which you determine to hire or retain an adviser. Form ADV Part 2A & 2B can be obtained by visiting https://adviserinfo.sec.gov and search for our firm name.  Neither the information nor any opinion expressed it so be construed as solicitation to buy or sell a security of personalized investment, tax, or legal advice.

This is prepared for informational purposes only. It does not address specific investment objectives, or the financial situation and the particular needs of any person who may receive this report.