An annuity is a contract with an insurance company.
In income designs, you pay premium now (or over time), and the insurer pays you a stream of income that can last for life or for a set period. The core trade is simple: you give up some liquidity and control of that capital in exchange for a paycheck you cannot outlive, subject to the insurer’s claims-paying ability.
Key takeaways
Lifetime annuity income pools longevity risk: people who live fewer years subsidize those who live longer, which is the point of the product.
Immediate annuities start income soon; deferred income annuities and deferred annuities with income riders start later and have different fee and guarantee structures.
Payout size depends on age, gender (where allowed), rates, premium amount, and whether you add inflation protection or partner benefits.
You usually trade liquidity and bequest potential for income certainty. Joint-life and period-certain options change that tradeoff.
Annuities are tools for an income floor, not a default home for every retirement dollar.
In this guide
With a single-premium immediate annuity (SPIA), you pay a lump sum and receive payments that can continue for life. The insurer prices your age and the interest-rate environment into the payout.
Deferred designs let assets grow first, then convert to income later, or attach a guaranteed lifetime withdrawal benefit (GLWB) rider to a deferred annuity. Riders add guarantees and usually add fees. Read the fee drag and the conditions for keeping the guarantee.
All else equal, older buyers receive higher monthly income per premium dollar because expected payment periods are shorter. Joint-life payouts are lower than single-life because two lives are covered. Inflation riders reduce starting income in exchange for rising payments.
Example framing (illustrative, not a quote): if a household needs $40,000 a year of essentials above Social Security, they might cover part of that gap with an annuity and leave the rest invested. The right share depends on other pensions, risk tolerance, and legacy goals.
Liquidity: many income annuities cannot be unwound easily. Keep emergency reserves and flexible assets outside the contract.
Legacy: pure life-only annuities may leave little or nothing to heirs if death is early. Additions like refund features or period-certain guarantees reduce that risk and also reduce the payout.
Credit risk: guarantees depend on the issuing insurer. Product shopping includes carrier strength, not only the highest illustrated payment.
Life insurance creates capital when someone dies. Annuities can create income while someone lives. Longer retirements make the income side harder to ignore, especially for households without pensions.
Stead Life helps clients decide whether an annuity belongs in the income floor, compare structures, and keep the rest of the insurance plan coherent. We do not claim annuities are right for everyone.
Comparison
| Design | Income start | Main tradeoff |
|---|---|---|
| SPIA | Usually within a year | High commitment, clear paycheck |
| Deferred income annuity | Future date you choose | Capital locked for future income |
| Deferred annuity + GLWB | When you turn on withdrawals | Fees for flexibility and guarantees |
| Period-certain only | As contracted | No lifelong longevity hedge |
Checklist
Common questions
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