They may seem complicated, but the right financial guidance can make it easier to understand what kind of annuity is right for you. How does a lifetime annuity work, you ask? An annuity is essentially a contract between you and an insurance company. When you purchase an annuity, you agree to make a lump-sum payment—or series of payments—in exchange for an income payment stream, beginning immediately or at some point in the future.
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What are lifetime income annuities?
There are many different kinds of annuities to choose from. Many New York Life annuities can provide a stream of income to last the rest of your life.
An annuity is the only financial product that can provide a guaranteed* stream of income. By making a lump-sum payment or series of payments—you can receive guaranteed payments (sometimes called distributions or income payments) for a specified term, up to and including income for life.
Immediate annuity, deferred income annuity, fixed deferred annuity—you’ve got lifetime income options.
Annuities have a whole host of names, based on benefits and issuing companies, but at their core, they are best understood by their time line (immediate or deferred) and market exposure (variable).
Immediate annuity—income for life starts now.
If you’re looking to turn a lump sum of cash into a stream of income right away, an immediate annuity may be right for you. Sometimes referred to as an income annuity or a single premium immediate annuity (SPIA), an immediate annuity lets you immediately turn a lump sum of money into a guaranteed stream of income.
How much does an immediate annuity cost? There’s typically a minimum purchase amount, but ultimately, it depends on how much you’re willing to purchase. As with all annuities, the payout you receive depends on the lump sum you start with, any additional payments you make, the annuity’s payout rate, your gender, and your age when you begin receiving income.
Deferred income annuities—more time means more income.
A deferred income annuity begins distributing payments at a future date of your choice. Typically, you make a single lump-sum payment (or a series of payments) and wait until you’re ready to start receiving income. The longer your money has time to grow, the higher the income payments will be.
Fixed deferred annuity—safe and secure growth.
Fixed deferred annuities, also known as fixed annuities, provide stable, guaranteed growth. This makes them particularly attractive to folks looking for a way to protect assets for future retirement needs while still enjoying modest growth.
Fixed annuities can be purchased with a lump sum of money. They offer tax-deferred growth at a guaranteed interest rate for a specified period of time.
The money within a fixed annuity grows tax-deferred, but withdrawals made during this time period, but this specific time period (which varies by issuer and contract) is known as the surrender charge period and any withdrawal amount over the annual withdrawal limit is subject to a surrender charge. Once your surrender charge period has ended, you will have full access to your money. Typically, the surrender charge decreases over a number of years.
Variable annuities—more growth potential with built-in protections.
If you’re looking to tap into potential equities growth, and are willing to accept the market’s ups and downs, a variable annuity may be for you. The benefit of variable annuities is that they offer more opportunity for growth with access to riders which can be purchased to provide principal protection, or an enhanced death benefit, for example, —depending on the specific annuity you purchase. These optional features have additional costs.
The value of a variable annuity is based on the performance of an underlying portfolio of market investments. Variable annuities have the advantage of providing more choices in the way your money is invested. This market exposure may be needed if you’re looking for the opportunity to grow your retirement nest egg. Keep in mind that variable annuities are subject to market risk, including possible loss of principal.
Lifetime Annuity FAQs
When it comes to creating a lifetime income stream, annuities are often misunderstood. Here are some of the frequently asked questions consumers have:
It all depends on your needs, your goals, and the kind of annuity you choose. The more you put in upfront, the higher the interest rate; and the longer you wait to receive the income, the higher your likely income payments will be. There are numerous other variables, including age, gender, and predicted lifespan, to name a few. It’s best to consult with your financial professional to determine what approach to funding your annuity is best for you.
It varies, depending on the product you choose, so this is a topic you will want to discuss with an agent. New York Life’s shortest term for a fixed-deferred annuity is three years, for example. Annuities are usually intended to be part of a long-term approach to generating income for life, rather than a source of short-term gains.
The minimum purchase of an annuity is usually $5,000 to $10,000, but if you’re looking for income for life, you should expect to purchase quite a bit more. A common question among people looking for a guaranteed lifetime income annuity is, “What will $200,000 buy?”
It varies based on your age, gender and the annuity payout option you choose. A financial professional who specializes in annuities can provide specific payout amounts.
What are the tax advantages of an annuity?
Use our Annuity Interest Rate Calculator to find out.
FAQs
Again, it all depends on the specific annuity. Do some research online and then talk to an annuity specialist to get detailed numbers.
Immediate, deferred, fixed, or variable? - the tax rules will vary depending on the type of annuity you purchase and how you choose to receive income payments.
If you use pretax money from an IRA or a 401(k) to purchase your annuity, all income payouts you receive will be subject to taxes. However, if you use after-tax money to purchase your annuity, a portion of the income you receive will be a tax-free. It’s important to note that any taxes you owe on your annuity will be taxed at your ordinary income-tax rate, not the preferable capital-gains rate. Questions about taxes are best answered by your trusted tax professional.
Annuities have pluses and minuses. If you decide to withdraw from a fixed deferred annuity during the surrender charge period, the amount of your withdrawal may be subject to a surrender charge. In addition, you may be subject to a premature federal tax penalty of 10% on the money you withdraw before age 59½.
Here again, annuities can differ substantially. Some offer riders to make early withdrawal less costly. Ultimately, an annuity is for someone looking for long-term growth or lifetime income. You should not buy an annuity if you might need access to the principal before the payout phase.
Mortality credits are an added benefit of select annuities from life insurance companies. Premiums paid by policy holders who die earlier than expected contribute to gains for the overall pool of participants. These unexpected gains result in greater returns to surviving policy holders and annuitants. By pooling risk, you also benefit from pooling reward. This is a valuable feature that’s exclusive to annuities from life insurance companies.
Get more from a company that offers more.
Choice, benefits, and peace of mind are just three reasons why you should consider purchasing an annuity from New York Life.
Our Guaranteed Lifetime Income Annuities and Lifetime Mutual Income Annuities can provide secure income now.
Our Guaranteed Lifetime Income Annuities, Future Mutual Income Annuities, and Clear Income Fixed Annuities can help you grow your savings and benefit from a stream of lifetime income when you’re ready to retire.
Our agents are here to answer any questions and help you find the right solution. Plus, with our history of more than 175 years of making prudent decisions and our consistently high ratings for financial strength2 you can rest assured that we will be there when you need us—today, and for the long haul.
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Want to learn more about life insurance?
A New York Life financial professional can help determine what’s right for you.
Annuities contain certain fees, risks, limitations and restrictions; Please speak with a financial professional for costs and complete details. Withdrawals may be subject to ordinary income taxes and, if made prior to age 59½, may be subject to a 10% IRS penalty; Surrender charges may also apply.
Please consider the charges, risks, expenses, and investment objectives carefully before purchasing a variable annuity. The prospectus contains this and other information and can be obtained from a financial professional. Read the prospectuses carefully before you invest or send money.
Annuity products are issued by New York Life Insurance and Annuity Corporation and its parent company, New York Life Insurance Company, 51 Madison Avenue, New York, NY 10010. All guarantees are dependent on the claims-paying ability of the issuer. Available in jurisdictions where approved.
Variable annuities are offered by NYLIFE Securities LLC, Member FINRA/SIPC, a licensed insurance agency and New York Life company.
Neither New York Life Insurance Company, nor its agents, provides tax, legal, or accounting advice. Please consult your own tax, legal, or accounting professionals before making any decisions.
*The guarantees of life insurance are based solely on the claims-paying ability of the issuer. Guarantees remain in place as long as all premiums are paid.
2 Individual independent rating agency commentary as of 10/15/20. A.M. Best (A++), Fitch (AAA), Moody’s Investors Service (Aaa), Standard & Poor’s (AA+)