An income annuity is an insurance contract designed to turn a portion of your money into a predictable stream of income.

The main problem it is designed to help solve is longevity risk — the risk of outliving your money.

Instead of relying entirely on withdrawals from savings or investment accounts, an income annuity can provide payments for a set period of time or, depending on the contract, for the rest of your life.

You provide money to an insurance company, and in return the company agrees to make income payments according to the terms you select.

Those payments may begin:

• Almost immediately
• At a future date
• For a specific number of years
• For your lifetime
• For the lifetimes of two people, such as spouses

The amount of income you receive depends on factors such as:

• How much money is placed into the annuity
• Your age when income begins
• Interest rates at the time
• Whether income is for one life or two
• Whether you choose beneficiary or period-certain features
• The specific contract and payout option selected

An income annuity can generally be structured in one of two ways.

Immediate Income Annuity
Income begins relatively soon after the contract is purchased, often within 12 months.

Deferred Income Annuity
Income is scheduled to begin at a future date. The longer income is deferred, the greater the future payment may be, depending on the contract.

An income annuity may be appropriate for someone who wants:

• Predictable income
• Income that can continue for life
• Less reliance on market withdrawals
• Help covering essential monthly expenses
• Additional income alongside Social Security or a pension
• Greater confidence that a portion of their income will not run out

For many people, the goal is not simply to accumulate the largest possible account balance.

Eventually, the money needs to produce income.

An income annuity is designed to help turn savings into a paycheck.

Depending on the annuity and payout option selected, income can be guaranteed for the lifetime of one person or two people.

Some contracts also provide options that allow beneficiaries to receive remaining payments or benefits after the annuity owner's death.

Adding beneficiary protections or guarantees can affect the amount of income paid, so it is important to understand the tradeoffs before selecting an option.

An income annuity may be worth considering for someone who:

• Is concerned about outliving their money
• Wants a portion of expenses covered by predictable income
• Does not want all retirement income dependent on market performance
• Values income certainty over maintaining full access to every dollar
• Wants to create an additional lifetime income source

Income annuities are not appropriate for everyone. Liquidity can be limited, and some contracts may not allow you to access the original premium after income begins.

The important question is not simply, “How much money have I accumulated?”

It is:

“How much dependable income will that money provide, and how long will it last?”

Education first. No pressure. Just options.