What are Income Annuities?
Just about any annuity can become an “income annuity”; most annuities after a certain period of time can be annuitized and turned into a stream of income for an agreed to amount of time. When you annuitize an annuity your asset is essentially absorbed into the holding company and they agree to give you a paycheck for a period of time you agree to. This income can last a lifetime even if your original investment has been exhausted by these payments the insurance carrier will continue to send your monthly or annual check.
Income Annuities do not always have to be annuitized to start providing income. Some annuities offer income riders for a small fee generally around .50 to 1.25% of your account balance every year. These types of income annuities with fees are nice because you can see what your income will be before you invest into the annuity. You can look 1-15 years into the future and know exactly what your income will be in any given year. These can be incredibly helpful when planning your retirement and provide peace of mind. There are some income riders that have no fees but the income amount is based on market performance. These are nice when someone wants income but doesn’t want to pay a fee. The downside is that you cannot be exactly sure what your income will be when you need it.
The primary difference between annuitization and income riders is that the income rider, if your life changes and you no longer want income or need to have access to your cash value you can take the remaining money in the account and cancel the paychecks. With annuitization your original asset is gone and you are just receiving payments.