Income annuity payouts vary greatly because they depend on a host of factors such as your age and purchase amount but also factors like interest and mortality rates (see below). That’s why it’s important to work with a financial professional who can review all your options and help determine an income strategy appropriate for your needs and goals.
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What is a lifetime income annuity and how does it work?
Often regarded as “longevity insurance, ” lifetime income annuities are a popular way for aging Americans to make sure they won’t run out of income—no matter how long they live. Despite this, these products are often misunderstood or confused with other retirement assets and annuities. This article helps set the record straight by explaining what a lifetime income annuity does and why it is different from other products.
Key takeaways
- Like all annuities, lifetime income annuities are designed to convert some of your retirement savings into a steady, dependable stream of income.
- With the decline of traditional (defined benefit) pensions, lifetime income annuities are one of the few ways for retirees and pre-retirees to generate income that is guaranteed to last for the rest of their lives.
- Lifetime income annuities operate very differently than IRAs or 401(k)s—but they often work together to help aging Americans build retirement security.
A brief overview of lifetime income annuities
We all want to enjoy a long, secure, and fulfilling retirement. A lifetime income annuity can help with that by converting some of your retirement savings into a steady stream of income—one that’s guaranteed to last the rest of your life.1 Typically funded with a lump sum or a series of payments, these products are designed to provide consistent payouts—monthly or at other regular intervals—which you can use to cover essential expenses throughout retirement.
While annuities come in many forms, lifetime income annuities are defined by their ability to provide income that cannot be outlived. Some begin payments shortly after purchase (immediate income annuities), while others are designed to start paying at a later date (deferred income annuities), which may result in higher future income payments due to the deferral period.
10 things you should know about lifetime income annuities
1. Who guarantees my income?
Lifetime income annuities are long-term contracts between you and the issuer (usually an insurance company). Any guarantees they make are backed solely by the financial strength of the company—which is why you should always take their ratings into consideration. For example: 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: A.M. Best, Fitch, Moody’s, and Standard & Poor’s.2
2. How can I benefit from a lifetime income annuity?
A lifetime income annuity helps make your retirement more secure. Since the amount you receive each month is guaranteed, and payments will continue for the rest of your life, you can plan with confidence knowing that you will always have this money to help meet basic needs.
Bear in mind that lifetime income annuities are not liquid—which means you cannot cash them in and receive a lump sum in return. Your premium is returned to you only in the form of income payments. If liquidity is a concern, you may want to consider other financial products.
3. What other advantages does a lifetime income annuity provide?
Depending on your financial situation and retirement goals, lifetime income annuities may help support predictable income in retirement. Some clients use this income to help cover discretionary expenses such as travel, entertainment, or other lifestyle goals. These products may also help support greater confidence and flexibility in retirement spending.”
4. What is the rate of return on a lifetime income annuity?
Lifetime income annuities are not measured by a rate of return. Instead, they offer an annual payout rate that is based on three factors: accumulated interest, return of principal, and mortality credits (a pool of money that comes from contract owners who pass away earlier than expected). Altogether, annual payout rates typically fall somewhere between 5%–10% but can vary greatly, so it’s usually best to shop around. Payout rate is not an interest rate.
5. How soon can my income payments begin?
It depends on the type of annuity you purchase. Generally, If you buy an immediate lifetime income annuity, your payments will begin one month after purchase (for monthly payouts), one quarter after purchase (for quarterly payouts), and so on. If you buy a deferred lifetime income annuity, your payments will begin sometime in the future—anywhere from two to 40 years down the road.
6. Are there any age or health restrictions?
Eligibility can vary depending on the type of annuity and whether you’re using qualified or non-qualified funds. Certain features or optional benefits may also have age-related guidelines at the time of purchase. In most cases, you won’t need to provide medical history to obtain a lifetime income annuity.
7. What kind of funds can I use to purchase a lifetime income annuity?
Lifetime income annuities may be funded with qualified or non-qualified assets; however, the source of funds generally affects the tax treatment of income payments. Funds from pre-tax retirement accounts, such as traditional IRAs or 401(k)s, are generally taxable as ordinary income when distributed. Funds from after-tax sources, such as savings or checking accounts, may result in a portion of income payments being treated as taxable earnings and a portion as return of principal. If you roll over funds from a Roth IRA, qualified distributions may be received income tax-free if IRS requirements are met. Clients should consult their tax advisor regarding their specific situation.
8. How much of my money should I use for a lifetime income annuity?
The right amount depends on your broader financial picture. Income annuities should be typically one component of a diversified retirement strategy, and factors like age, interest rates, and market conditions all play a role. Minimum and maximum purchase limits may apply, so it’s wise to work with a financial professional to determine an appropriate allocation.
9. What happens to my money if I pass away unexpectedly?
Many income annuities include optional death benefit features. For example, a refund option may ensure that if you pass away before receiving payments equal to your initial investment, the remaining value is paid to your beneficiaries.3 Available options can vary, so reviewing them in advance is important.
10. Can I ever withdraw more than my monthly income?
In most cases, you cannot get an “advanced payment” or withdraw any of the money used to purchase your annuity. Some lifetime income annuities may allow you to access future payments but you must be at least age 59½ and have selected this option when you first purchased your annuity.4
What is an income annuity (FAQs)?
While both are important retirement planning tools, a 401(k) focuses on building assets while an income annuity helps convert those assets into a steady stream of retirement income.
Depending on your financial situation and retirement goals, a 401(k) and an income annuity may complement one another. Both may offer tax-advantages. However, 401(k)s are commonly designed for asset accumulation and annuities are often designed for asset distribution.
It depends on how the annuity is funded. If you use pretax money from an IRA or a 401(k), all income payouts will be taxed. If you use after-tax money, a portion of the income you receive will be tax-free. If the entire premium for your annuity is rolled over from a Roth IRA, no portion of your payout will be taxed.
Note: Any taxes you owe on your annuity will be treated as ordinary income, not capital gains.
Your funding approach depends on your financial situation, the type of income annuity and your goals. Some income annuities are purchased with a single premium, while deferred income annuities may allow multiple premium payments over time. A financial professional can help determine which funding method is right for you.
While some annuities last only a few years, they are generally considered long-term assets that are designed to make your money last in retirement. As the name suggests, lifetime income annuities do not have a set “term” or maturity date as they will continue to pay out for the rest of your life—no matter how long you live.
Mortality credits are a unique feature of certain annuities. Mortality credits are a result of risk-pooling, which happens when premiums paid by those who die earlier than expected contribute to the overall pool and can help support the income of those who live longer.
Payout length varies by contract. Lifetime income annuities can provide income for as long as you live, while fixed-period options pay for a set number of years. The duration depends on the type of annuity you choose.
A lifetime income annuity is designed to provide payments or as long as the annuitant lives, subject to the claims-paying ability of the issuing insurance company. Other types, such as fixed-term annuities, only pay for a defined period and will end once that period is reached.
Get more from a company that offers more
Choice, benefits, and peace of mind are just a few reasons why you should consider purchasing an annuity from New York Life. Our agents are here to answer any questions and help you find the right solution. Plus, with our history of more than 180 years of making prudent decisions and our consistently high ratings for financial strength,2 you can rest assured that we will be there when you need us—today, and for the long haul.
Want to learn more about annuities?
A New York Life financial professional can help determine what’s right for you.
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1 The guarantees of an annuity are based solely on the claims-paying ability of the issuer.
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 A.M. Best (A++), Fitch (AAA), Moody’s (Aa1), and Standard & Poor’s (AA+). Source: Individual Third-Party Ratings Reports as of 9/30/2025.
3 This feature is available for an additional fee. 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.
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 Lifetime Mutual Income Annuity is 214-P200 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.
For most jurisdictions, the policy form number for the New York Life Future Mutual Income Annuity is 215-P200 and state variations may apply.