Figuring out how long your retirement savings needs to last is difficult. Guaranteed lifetime income can provide you with peace of mind through a paycheck that you won’t outlive.

Longevity Protection with Guaranteed Income

Insurance is typically thought of as something you buy to protect you and your family from unfortunate events. By turning your assets into income that you can’t outlive, the annuity offers a more pleasant kind of protection: longevity insurance. The longer you live, the more financial value the income annuity provides.

Simplified Asset Management

Adding an income annuity to your portfolio can dramatically simplify your retirement planning. Knowing that you’ll be receiving a steady paycheck, which could cover all or a portion of your expenses, makes it easier to manage your remaining assets. The certainty of guaranteed future income can completely change your approach to investing, withdrawing, and spending.

Spousal Benefits

Income annuities can be set up as joint annuities, which means that payments continue as long as either you or your spouse are alive. Structuring the contract like this is a great way to preserve financial stability and quality of life for the surviving spouse.

Lifetime Annuity Protection for Contributions

The savings that you allocate to an income annuity is protected from swings in the stock or bond markets. And, by selecting a death benefit option, you can guarantee that all of your savings will be passed onto your beneficiaries if you pass away prematurely.

Clear Annuity Income Structure

Income annuities have a simple structure. For any amount of premium you would like to put into the contract, the insurance company will tell you how much monthly income they can offer. There are some decisions you’ll have to make that affect the level of income, but that’s it. The income is net of the insurance company’s expenses and the commission collected by the distributor.

Despite these benefits, annuities are not good for everyone or for all situations. Here are some of the drawbacks:

Limited (or No) Liquidity & No Contract Value

Income annuities don’t offer much liquidity nor do they have a cash value that can be withdrawn or borrowed from. They should be thought of as a paycheck, like a pension.

No Market Exposure

The income you’ll receive is determined upfront, fixed, and isolated from any market volatility. While this is a positive attribute for those focused on insurance coverage, it isn’t right for those seeking an investment-style product.

The income offered on income annuities will vary over time as market conditions change, being driven most notably by longer-term Treasury and investment grade corporate bond yields. In addition, your personal attributes (age, gender) and the policy options you select will impact the quote.

Understanding how your personal attributes and the options you select drive quotes enables you to structure the policy to best suit your needs. Expect to have to think about the following when evaluating an income annuity:

Age

The longer you wait to buy, the less time the insurance company will have to invest your premium before beginning income payments. Holding all else equal, buying future income today will be cheaper than buying the same amount in the future.

Gender

Income will be higher for males than females. Because women have longer life expectancies than men, the income women receive each year will be smaller.

Premium

Income will increase with higher premiums. A portion of the insurance company’s expenses incurred are fixed per contract such that incremental premium can go entirely towards buying income. Said another way, there is usually a discount for larger premium deposits. There are a number of insurers, on the other hand, that price in a linear fashion. That means that small purchases get the same relative value as large purchases. Whether or not an insurer prices this way is noted in the details of the quote.

Single vs. Joint

Income will be higher for single life than joint life policies. A joint life policy will provide income as long as either person is alive, which is almost certainly longer than if contingent on one person.

The income level following the loss of the first life can be designed to remain level or decrease. Opting to reduce the income upon the passing of the first spouse (typically to 40-99% of the starting income level) allows for a greater income level while both are alive.

An alternative to buying a joint life annuity is to purchase a single life annuity with a Refund at Death (cash refund or death benefit) and designate your spouse as the beneficiary. Upon your passing, he/she will have the option to continue the contract in his/her name until any remaining amount of the initial premium has been paid out.

Payout Options

Income can be based purely on lifespan or can have a guaranteed component:

• Life Only: Payments stop at death (or later if two deaths for joint).
• Life with Refund at Death: Additional guarantee over life only that pays beneficiaries the difference between the premium and sum of all payments already received upon insured’s death.
• Life with Period Certain: Additional guarantee over life only that guarantees payments for at least a certain number of years. Payments will continue to beneficiaries if insured passes away during this period of time.
• Period Certain Only: Receive payments for only a specific number of years not tied to the insured’s death (not quoted on the website but available upon request).

Income will be lower for richer guarantees. Guaranteeing a minimum cumulative income (Refund at Death) or a minimum number of payments (Period Certain) increases the amount the insurer expects to pay you. To compensate for the extra guarantee, they will need to lower the recurring payments.

Inflation Protection

Most insurance carriers offer an inflation adjustment or annual increase rider that will adjust the annuity income payments annually for inflation. The adjustment made could be predetermined (between 1-5%) or in some cases be based on a Consumer Price Index. Providing these increases will require a lower starting income.

Because inflation affects the purchasing power of money, it presents a challenge for retirement, which could last 40 years. Adding an inflation rider to your income annuity is one way to mitigate the risk of declining purchase power, but it’s probably not the most efficient way, as the extra protection will come at a cost. Consider instead more direct ways to earn inflation-adjusted dollars. Your Social Security benefit, for one, will be indexed for inflation through a Cost-of-Living Adjustment. And, for the rest of your assets, maintaining exposure to equity markets and investing in inflation-linked bonds, such as TIPS or I-Bonds, can provide an effective hedge.

Other Benefits

Depending on the product, you may see some other benefits included in the income annuity. These benefits are generally included in the cost of the annuity. Some examples include:

• Payment Acceleration: Access to some liquidity is provided in in the form of commutation, or a withdrawal benefit which permits accelerating upcoming monthly benefits. A limited number of monthly payments can be accelerated at once, and guidelines exist around when and how often the policyholder can take advantage of this liquidity.
• Income Start Date Adjustment: Many insurers will afford you the one-time opportunity to move up or back your income start date by up to 5 years for a longevity annuity or QLAC.
• Additional Premium Payments (Flexible or Subscription): With some carriers you have the ability to fund your longevity annuity or QLAC over time, either through a flexible premium option or on a subscription basis. This is a good approach for those betting on pricing improvements or wanting to contribute a percentage of their income over time.

Insurer Rating

An insurer's financial credit rating measures their financial strength and ability to meet future obligations. The rating indicates the credibility and ability an insurance company has to repay any claims to customers. Our site uses the ratings of A.M. Best, which specializes in the insurance industry. We only offer carriers with a rating of B or better.

The A.M. Best rating categories are as follows:

A+, A++ are a superior rating

A, A- are an excellent rating

B+, B++ are a good rating

B, B- are a fair rating

C-D ratings are rated marginal to poor

A Qualified Longevity Annuity Contract, or QLAC for short, is a special type of longevity annuity purchased with tax-deferred savings from your qualified retirement account. The QLAC designation, which came out of a 2014 U.S. Treasury ruling, exempts these annuities from the standard RMD rules, which force those older than 73 (previously 70½ until 2020) to withdraw a specific amount of money from their tax-deferred retirement accounts each year. As such, the QLAC has extra specific requirements to earn the designation. Here are some relevant details:

QLAC Designation

Annuities must be specifically designated as QLACs to qualify for RMD exemption. Any previously purchased annuities not labeled as a QLAC cannot be reclassified. To be a QLAC, the product cannot have any market-based features, with the exception of an inflation adjustment. There also cannot be any cash surrender value.

Premium Limits

QLAC premiums are limited to $210,000 or 25% of your IRA holdings as of December 31st of the previous year.

• If you have $840,000 or more, this means $210,000.
• If you have less than $840,000, this translates to 25% of your IRA.

These limits apply to individuals, meaning that couples with separate IRA accounts could have up to $420,000 worth of QLACs. Note that it’s the insured’s responsibility to make sure his/her QLAC purchase complies with the premium limitations. If the limits are exceeded, excess premium must be returned by the end of the calendar year following the purchase.

Sources of Funds

QLACs can be purchased with funds from all non-Roth IRAs, 403(b), and 457(b) plans. QLACs cannot be purchased with funds from Roth IRAs or Defined Benefit plans. If you are interested in using 401(k) funds, you may only do so once you have rolled these funds into a Traditional IRA.

Deferral Period

Deferral of income is allowed until age 85, at which time income payments must begin. To benefit from the RMD exemption, you’d also want to start income after age 73.

Any guaranties made by an insurance company are subject to the financial strength of the insurance company and their claims-paying ability. A state guaranty fund is administered by each U.S. state to protect insurance policyholders who reside in that state at the time the insurance company defaults on benefit payments or becomes insolvent. This should not be thought of as a substitute for FDIC insurance, which annuities do not have. If you own an annuity, the state guaranty fund for the state where you reside protects your benefits up to set limits, and those fund rules vary state-by-state. Learn more.

You can also find more state-specific information via the National Association of Insurance Commissioners.

From the government’s perspective, an annuity is a retirement savings vehicle. As such, it receives the same tax treatment as IRAs: no taxes are paid until distributions are made. The benefits are slightly different depending on whether the income annuity is funded with qualified or non-qualified funds:

Qualified income annuities are purchased with pre-tax funds from your 401(k) or Traditional IRA, which are already accumulating on a tax-deferred basis. Retirement savings can be transferred to an income annuity penalty-free, maintain their tax preferential treatment, and count towards your IRS-mandated required minimum distributions (RMDs).

The RMD is an IRS-mandated minimum amount you must withdraw from your tax-deferred retirement accounts every year starting at age 73. However, QLACs are exempt from this rule, allowing you to delay distributions until as late as age 85. By moving money out of your 401(k) or IRA and into a QLAC, you can reduce the required withdrawals and associated taxes between ages 73 and 85, allowing more of your money to work for you on a tax-deferred basis.

Non-qualified income annuities are purchased with post-tax funds; therefore, your income payments will not be 100% taxable. Each income payment can be split into two pieces: a part that’s returning your initial investment, and a part that’s your gain or interest earned. Taxes will only be owed on the gain, as the premium you invested in the contract has already been taxed. This non-taxable portion of the income payment is determined using an exclusion ratio, which is provided by the insurance company at purchase.

The exclusion ratio (investment in the contract ÷ expected return) will be applied to each income payment, indicating how much is not taxable, until the full investment in the contract has paid out. Once the investment has been fully returned, subsequent income payments will be fully taxable.

Finally, if a death benefit or refund at death is due to your beneficiaries, taxes owed will be calculated in a similar manner. Any portion of the death benefit that constitutes a return of premium will be received tax-free, whereas benefits in excess of the initial investment will be taxed at ordinary income levels. Either way, the benefit will be passed directly to beneficiaries, thus avoiding the probate process. And, unless your spouse is designated as your beneficiary, the annuity will typically be included in your estate.

It’s important to understand the tax implications of income annuities and work with a tax professional to develop a plan that helps to minimize your tax burden.

Here's an outline of what you can expect from the application process.

It should take 15-30 minutes to complete. Feel free to move between sections as you complete the application. We will auto save your progress, and you can exit and return to the application at anytime.

• Personal Information: Your address, phone number, SSN, and place of birth.
• Driver's License: Confirm your identity by uploading a picture of the front of your driver’s license.
• Beneficiaries: List the individual or individuals who will receive the accumulated value of your annuity should you pass away.
• Financial Overview (May Require Preparation): Provide estimates of your income, expenses, assets, and debt; and answer suitability questions required by the insurance company to make sure the annuity is a good fit for you.
• Funding Source: Such as a check, wire transfer, ACH deposit, IRA, or annuity exchange, etc. Some funding sources can impact insurer processing times.

Application Review

Within 1-2 business days, our team will review your Blueprint Income application and reach out to you to confirm any necessary details before finalizing the insurer application. As part of this process, we will send you the final insurer application to review and sign before submitting it to the insurance company.

Insurer Processing

Most insurers will typically have a processing period of a few weeks to accept the application, process funding, and formally issue the policy. Processing may take longer for a 1035 exchange or transfer of assets.

Policy Receipt

Once the processing is complete, the insurer will provide us with your formal policy documentation, which we'll pass along to you and make available in your online account. You'll always have about 10-30 days from the time you receive the policy to reject it for any reason. This is called the "Free Look Provision", and it’s required by law.

Manage Your Annuities

Keep track of your annuity via our online portal.