10 things you should know about income annuities

An income annuity can provide you with a stream of guaranteed income during retirement, starting immediately and lasting for life.

image-10-things-to-know-about-income-annuity

What is an income annuity and how does it work?


If you are in or near retirement, and you have some money set aside, an income annuity lets you to convert part of your retirement savings into a stream of guaranteed lifetime income payments. You can purchase an annuity with a single lump-sum of money, called the “premium” or through flexible premium payments over time.  

In return, you’ll receive a check (or direct deposit) on a monthly, quarterly, semiannual, or annual basis for the rest of your life. Most people choose to start receiving these payments either at or sometime after retirement. 

1. Who guarantees my income?

Your income is guaranteed by the company that issues the annuity. So, make sure the company you buy your annuity from has high ratings from the leading independent rating agencies, A.M. Best, Fitch, Standard & Poor’s, and Moody’s Investors Service. New York Life has earned the highest ratings for financial strength currently awarded to U.S. insurance companies by all four leading independent rating agencies.
 

2. How can I benefit from an income annuity? 

An income annuity can help protect against the risk of outliving your savings. The amount you receive each month is guaranteed, and payments will continue for as long as you live.
 

3. What other advantages does an income annuity provide?

An income annuity is not subject to stock market performance. Regardless of the ups and downs of the financial markets, the amount of annuity income is locked in and guaranteed.
 

4. What is the rate of return on an income annuity?

An income annuity is not an investment that provides you with a rate of return over a fixed period of time, like a CD.1 Rather, it's an income product that provides you with fixed monthly income that is guaranteed for life, no matter how the markets perform. The total payout you receive will be based how long you live. The longer you live, the more total income you’ll receive in your lifetime.
 

5. How soon can my income payments begin?

Depending on what income annuity you buy, your income payments can begin right away or be put off until a later date.3 If you purchase a single-premium immediate annuity, you’ll receive income within 12 months of purchase—beginning one month after purchase (for monthly payouts), one quarter after purchase (for quarterly payouts), and so on.  

If you purchase a deferred income annuity, your payments will begin anytime from two to 40 years in the future. As with a single premium immediate annuity, you can choose to receive your income payments monthly, quarterly, semiannually, or annually. 

second-image-10-things-to-know-about-income-annuity

6.  Are there age or health restrictions? 

It depends on the type of annuity you purchase, and the tax qualification of the funds you use to purchase your annuity. Additional age restrictions may exist, depending on specific benefits selected at time of purchase. No medical history is required. 

7.  What kind of funds can I use to purchase an income annuity?

You can use a variety of sources, including checking or savings accounts, investments, inheritances, or other retirement savings. 

In some cases, you can even combine multiple assets to fund an income annuity. 

8.  How much of my money should I use for an income annuity?  

It depends on the product. New York Life income annuities allow you to purchase an income annuity for $5,000 or any amount above that, although any premium payments of $3 million or more (whether an individual premium or a payment aggregated from multiple sources) require prior New York Life Insurance and Annuity Corporation approval. Together with your financial professional, you can determine the most appropriate amount of money to use to purchase an income annuity, based on your specific needs and situation. 

9.  What happens to my money if I pass away unexpectedly?  

Income annuities often offer some form of death benefit. (Most New York Life annuities do.) One of the options you can select is “cash refund.” If you select this option and die before your income payments equal the full amount of your annuity purchase price, your beneficiary will be paid the difference. Additional payout features are also available.

10.  Can I ever withdraw more than my monthly income?  

Money used to purchase an income annuity will be permanently locked into the contract, and it can be returned only in the form of income payments. However, if you are at least age 59½, you may be able to access future payments, which can be helpful in the event of an emergency, through optional features.4

Related Articles 

Want to learn more about annuities?

A New York Life financial professional can help determine what’s right for you.  


1 CDs are FDIC insured up to $250,000 per deposit. At the end of the maturity term, the full investment amount of the CD, plus interest, becomes available again, whereas with an income annuity each payment includes both interest and return of premium.

2 New York Life Insurance Company and New York Life Insurance and Annuity Corporation have received the highest financial strength ratings currently awarded to any U.S. life insurer by Standard & Poor’s (AA+); A.M. Best (A++); Moody’s (Aaa); and Fitch (AAA). Source: Individual Third-Party Ratings Reports as of 10/15/2020.

3 The New York Life Guaranteed Lifetime Income Annuity and New York Life Guaranteed Future Income Annuity (GFI) are issued by New York Life Insurance and Annuity Corporation (NYLIAC), A Delaware Corporation, a wholly owned subsidiary of New York Life Insurance Company, 51 Madison Avenue, New York, NY 10010. Products are available in jurisdictions where approved.

4 Proceeds will be fully taxable at the time of receipt. You should consult your own tax adviser prior to exercising a withdrawal feature, such as payment acceleration or cash withdrawal, under an immediate annuity, to confirm tax consequences and penalties, including a retroactive penalty that may apply to policies purchased prior to age 59½. Payment options and features are available only in jurisdictions where approved. 

These contracts have no cash surrender value, and contracts in which a Life Only payout option is selected do not provide a death benefit either prior to, or after, the designated income start date. All guarantees are subject to contract terms, exclusions and limitations, and the claims-paying ability of NYLIAC. Additionally, the GFI contract does not permit withdrawals prior to the income start date, and it guarantees income payments at least as long as the annuitant is living, provided the annuitant is alive on the designated income start date.

For most jurisdictions, the policy form number for the New York Life Guaranteed Lifetime Income Annuity is ICC11-P102; it may be 211-P102 and state variations may apply. 

For most jurisdictions, the policy form number for the New York Life Guaranteed Future Income Annuity is ICC11-P100; it may be 211-P100 and state variations may apply. 

SMRU# 1604784