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4 ways to draw lifetime income from an annuity

In 2022, 麻豆传媒 polled U.S. adults on their retirement savings strategies and awareness and understanding of annuities. Nearly half said they were on track to meet their retirement savings goals, but 55% were worried they鈥檇 outlive their money, and a similar percentage agreed that their retirement savings strategy would be more risk averse as they approached retirement. At the same time, while annuity sales are at record levels, nearly a quarter of those surveyed were not aware of annuities or how they could be used to address their concerns.

Outside of Social Security and defined benefit pensions, annuities are the only financial products that can be used to create a guaranteed stream of income for life. Fixed annuities and registered index-linked annuities (RILA) can also be used to hedge market risk in traditional portfolio withdrawal strategies.

To help guide your conversations around retirement income planning, here are four ways an annuity can generate lifetime income and help bring more peace of mind to your client's retirement.

1. Purchase a single premium immediate annuity (SPIA), also known as an income annuity.

SPIAs are commonly known as a simple, straightforward solution for creating a guaranteed stream of retirement income. In return for a single premium, a SPIA can provide a guaranteed stream of income for life. A retiree can choose to receive monthly, quarterly, semiannual or annual payouts throughout retirement. 

2. Convert the value of an in-force deferred annuity contract into a guaranteed stream of income through a process called annuitization.

When a client has a deferred annuity and wishes to turn their retirement savings into income, they can do so through annuitization. This process allows a client to convert the money they鈥檝e put into an annuity into regular, guaranteed payments for a specified period or the rest of their life. With a fixed annuity, the payments are protected from market volatility and can provide flexibility based on a client鈥檚 needs. It鈥檚 important to keep in mind that payments may end upon a client鈥檚 death or the death of their beneficiary. 

3. Activate an optional or built-in rider purchased with an index-linked annuity. 

For clients who want to grow their retirement savings but have a measure of protection from loss if there is a market downturn, a fixed indexed annuity (FIA) or RILA may be a good match. Many of these annuities have an optional or built-in rider, often for a fee, that can provide lifetime income in retirement. The income amount is typically guaranteed provided no withdrawals are taken after income is elected. 

4. Exercise a deferred annuity鈥檚 free withdrawal provisions, which may include required minimum distributions (RMDs) and other systematic withdrawals.

Many deferred annuities offer a free withdrawal provision where a client can withdraw a portion of their funds each year鈥攗sually up to 10% of the total annuity contract value鈥攚ithout paying a surrender charge. Exceeding this limit may result in a penalty. 

Systematic withdrawals 

Creating a systematic withdrawal plan can allow the annuitant to choose the amount and frequency of withdrawals, whether on a monthly, quarterly, semi-yearly or annual basis.

RMDs

If a client has a qualified annuity, like those held in an IRA or other tax-advantaged plan, they may need to withdraw required minimum distributions (RMDs) once they reach age 73 to avoid paying a penalty. 

An individual may be required to pay a surrender charge if they withdraw money during an annuity鈥檚 surrender charge period. In some instances, withdrawals made prior to age 59陆 may also be subject to a 10 percent federal income tax.

Helping today鈥檚 retirees

Unlike the retirement landscape of the past, today鈥檚 retirees may need to find ways to fill the income gaps left by Social Security and dwindling pensions to help ensure they don鈥檛 outlive their savings. 鈥淭he need for guaranteed lifetime income in retirement is more important than ever as retirees face unique challenges, like rising health care costs, market risk and increasing longevity,鈥� says Adam Politzer, Senior Vice President and Chief Product Officer at 麻豆传媒. 鈥淵our clients will need to be prepared for the 鈥榳hat-ifs鈥� of retirement and an annuity can help create a resilient income plan that meets diverse needs and allows them to enter retirement with greater confidence and peace of mind.鈥�

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Registered index-linked annuities can only be marketed and sold by securities licensed financial professionals. To view individual credentials, go to .