Income Annuities

The Official Guide to Income Annuities

Income annuities convert your retirement savings into guaranteed lifetime income starting immediately or in the future

What Is an Income Annuity?

An income annuity is a lifetime income guarantee that you purchase from an insurance company as a way to reduce the risk that you run out of money in retirement. Just like you insure your home, you can insure your longevity by passing on the risk that you outlive your savings to an insurance company.

There are many ways to fund an income annuity — years before retirement, at retirement, over time, etc. — but they all provide you with the same thing: a guaranteed, steady lifetime-income stream when you retire that simplifies your retirement spending and offers peace of mind that you will not outlive your savings. You can think of it like a pension you buy for yourself.

All annuities are built on this core concept; however, annuities can be complicated by various features, bells, and whistles that make them harder to understand, challenging to evaluate, and, in our opinion, less valuable. At Blueprint Income, we provide only income annuities (immediate annuities, longevity annuities, and Qualified Longevity Annuity Contracts) and fixed annuities. These are the simplest of products, offering either guaranteed income (income annuity) or guaranteed return (fixed annuity). They are explicit in what you’ll get in exchange for the money you put in, and they’re the cheapest way to get a guarantee.

Here are the various types of annuities out there:

blueprint-income-types-of-annuities

 

Income Annuity FAQs

Retirement Income & Annuities

What is an annuity?

An annuity is a form of insurance that protects your longevity. When you purchase an annuity you pay an insurance company, who invests your money, and promises to pay you a fixed and guaranteed amount of income starting on a future predetermined date and continuing for the rest of your life.

Annuity Types

What are the different types of annuities?

What makes an annuity an annuity is its ability to provide guaranteed, lifelong income in retirement. Some annuities exist to do only that, while others have that as just an option. The former (provides income and income only) is called an income annuity. There are three types of income annuities:

  1. Immediate annuity (provides guaranteed, lifelong income starting 1-12 months after purchase)
  2. Longevity annuity (provides guaranteed, lifelong income starting 2-40 years after purchase)
  3. Qualified Longevity Annuity Contract or QLAC (a longevity annuity purchased with IRA funds starting after age 70½

The other type (has the option but not requirement) to provide income is known as a deferred annuity. There are three types of deferred annuities:

  1. Fixed annuity or multi-year guaranteed annuity (like a CD, it provides a guaranteed rate of return for a fixed number of years)
  2. Fixed indexed annuity (investment product that tracks market indices with limits on how much you can gain/lose)
  3. Variable annuity (investment product using mutual funds with limits on how much you can gain/lose)

Blueprint Income offers all types of income annuities, as well as fixed annuities. The Personal Pension is our flagship product that gives you access to all four with subscription-like funding.

Personal Pension: Basics

How is the Personal Pension different than an annuity?

Both the Personal Pension and a traditional income annuity guarantee lifetime retirement income, but there are some key differences between the two.

  1. The Personal Pension is subscription based and accepts small, recurring contributions instead of a large one-time deposit
  2. The average Personal Pension account is opened with $5,000, as compared to a traditional annuity’s average one-time premium of $100,000
  3. Not only are these contributions smaller in size, but you have the flexibility to change how frequently you want to make them
  4. Rather than choosing just one insurance company, the Personal Pension allows you to diversify across different insurance companies based on credit rating and pricing
  5. Because you can contribute over time with the Personal Pension, you also have the ability to benefit from future increases in annuity rates

Is an Income Annuity Right for You?

An income annuity may be right for you if:

  • Your Social Security and/or pension benefits are not enough to cover your regular expenses,
  • You have already started saving for retirement,
  • You are in above-average health and hope to live a long life, or
  • You are seeking greater certainty in retirement.

Annuities, are not, however, designed to be the totality of your retirement nest egg, as they don’t provide everything you need in retirement. In particular, they do not have the potential to provide high stock market returns, and they are typically not indexed for inflation.

For anyone interested in minimizing the risk of running out of money while maximizing the legacy you leave behind, the portfolio strategy that predicts the best outcomes are those with annuities instead of bonds. Read more about our research about retirement portfolio optimization here.

 

Types of Income Annuities

There are three types of income annuities. All provide a steady, guaranteed paycheck for life, but they differ in when that income starts and the money used to fund them. The three types of income annuities are:

  • Immediate Annuities: For those about to retire or already retired, immediate annuities provide income starting within 12 months.
  • Longevity Annuities: For those farther from retirement, longevity annuities provide income starting more than 1 year from now.
  • Qualified Longevity Annuity Contracts (QLACs): For those looking to defer IRA required minimum distributions, QLACs are longevity annuities purchased with Traditional IRA savings with income starting after age 70½ but before 85.

Quotes for all 3 types of income annuities are available for free on our website via the Income Annuity Quote Tool. Read on for more information, financial examples, and details about each of the types of income annuities.

Type Immediate Annuity Longevity Annuity QLAC
Starts Within 1 year In more than 1 year In more than 1 year & between ages 70½ – 8
Provides Guaranteed income for the rest of your life Guaranteed income for the rest of your life Guaranteed income for the rest of your life
Funded With Qualified (IRA) or non-qualified (personal savings) money Qualified (IRA) or non-qualified (personal savings) money Only qualified money (Traditional IRA or 401(k) rollover)

 

 

Immediate Annuities

An immediate annuity is an income annuity that starts within 12 months. It is funded by giving a lump-sum premium deposit to an insurance company, and in exchange, the insurer promises steady, guaranteed income that continues for the rest of your life. You can think of it like a pension you buy for yourself.

immediate-annuity

Tip: You might hear this product referred to using a few different names:

  • Single premium immediate annuity
  • Immediate annuity
  • SPIA

Head over to the immediate annuity guide to learn more about these products, see examples of them in action, and get buying tips. When you’re ready, you can get personalized quotes for free in the Immediate Annuity Quote Tool.

Immediate Annuity Guide

 

Longevity Annuities

A longevity annuity is an income annuity that starts more than 12 months from now. It is funded through a lump-sum premium or recurring deposits over time (as with our flagship product, the Personal Pension). In exchange, the insurance company promises steady, guaranteed income that continues for the rest of your life. You can think of it like a pension you buy for yourself.

blueprint-income-longevity-annuity-diagram

Tip: You might hear this product referred to using a few different names:

  • Longevity annuity
  • Deferred income annuity
  • DIA

Head over to the longevity annuity guide to learn more about these products, see examples of them in action, and get buying tips. When you’re ready, you can get personalized quotes for free in the Longevity Annuity Quote Tool.

Longevity Annuity Guide

 

Qualified Longevity Annuity Contracts

A Qualified Longevity Annuity Contract, or QLAC for short, is a special type of longevity purchased with tax-deferred savings from your qualified retirement account, such as a Traditional IRA. It provides income starting more than 1 year from now and also between the ages of 70½ and 85. It’s the only way to defers required minimum distributions (RMDs) applicable to 401(k)s and Traditional IRAs beyond the age of 70½.

blueprint-income-qualified-longevity-annuity-contract-qlac-diagram

Head over to the QLAC guide to learn more about these products, see examples of them in action, and get buying tips. When you’re ready, you can get personalized quotes for free in the QLAC Quote Tool.

QLAC Guide

 

The Personal Pension

Blueprint Income’s flagship product, the Personal Pension, is an easy and diversified way to get guaranteed annuity income. It’s an account that can be opened with as little as $5,000 and accepts additional contributions of $100 or more flexibly over time. Each contribution buys a mini income annuity from one of our insurance providers, allowing you to diversify your purchases over time and interest rate environments. Learn more about the Personal Pension here.

Here you can see what annual contributions into a Personal Pension will guarantee you in annuity retirement income. After just a few years in retirement, you’ll have recouped your initial investment, and the rest will be profit.

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Buying an Income Annuity Online

It’s now possible to make your income annuity purchase online. Instead of in-person meetings and paper applications, we’ve built the technology to provide you real-time quotes online and generate your application for the insurer digitally. Despite our tech-enabled approach, we’re still fiduciaries, licensed to provide these products to you, and available via chat, email, or phone to provide personalized assistance.

Here is the process to secure your income annuity online:

  1. Run quotes using the free Income Annuity Quote Tool.
  2. Review the details of the annuities and your quotes.
  3. If you’re not ready to buy, you can lock in your quote for 7-14 days with the “Lock Quote” feature. Keep in mind that in order to get these locked rates, a completed application needs to be accepted by the insurer before quote expiration.
  4. Once you’re ready, click “Apply” on any new quote or locked quotes in your account.
  5. Fill out the online application in under 10 minutes.
  6. Our team will follow up to confirm your purchase and submit the application to the insurer(s) on your behalf.

If you have any questions, don’t hesitate to reach out to our team.

 

Longevity

Good Annuities

A classic, good annuity is one that provides guaranteed income for as long as you live. It’s a way to diversify your portfolio, and make sure that your basic retirement expenses will be covered. But beware of market-based annuities that promise too much and don't deliver good value.

Annuity Basics

Annuities 101 — Annuity Basics for Beginners

An annuity is guaranteed lifetime income that reduces the likelihood that you’ll run out of money in retirement. Income from an annuity is predictable, steady, and cannot be outlived. This Annuities 101 article provides an overview of annuities and links to resources that will help you decide if an annuity is right for you.