Can You Outlive an Annuity? What You Need to Know About Lifetime Income

It depends on the payout option you choose. You can outlive period-certain annuity payouts — an option that pays for a specific period of time and then stops. You can’t outlive life annuity payouts — these are designed specifically to provide an income for the rest of your life. 

Annuity companies often claim that annuities provide guaranteed income for life. 

Is that true? Or can you outlive an annuity?

The truth is that it depends on the particular product and payout options that you choose. When you annuitize them and convert them to an income, virtually all annuities give you the option to choose a lifetime income and receive regular payouts for the rest of your life. Some annuity products also let you choose other payout options that won’t last until you die.

In this article, you’ll learn about which annuities and options provide lifetime income, which ones don’t, and how to find one that’s right for you.

How Annuities Can Offer Guaranteed Income For Life

Annuities are a contract that you can purchase from a life insurance company. You pay premiums in a lump sum or a series of payments, and the company agrees to pay you back with income later.

The details of how they pay it back depend on the type of annuity product and the features you choose.

Lifetime Income Through Annuitization

The first way to receive retirement income for life is through annuitization — the process of converting the money in your annuity account into regular income payments. When you annuitize, your insurance company will explain how much monthly income you will receive based on several factors, which may include the amount of money in your annuity account, your life expectancy, and the payout option you choose.

With immediate annuities, you annuitize immediately and begin to receive withdrawals soon after you buy. How you receive that income is up to you — you choose the payout options. Virtually every annuity provider offers guaranteed income for life as one of those options.

With deferred annuities, your cash grows with interest over time, and you can choose to annuitize later. If you annuitize, you’ll almost certainly be able to select a payment option that lets you receive income payments until you die.

You can also choose not to annuitize and simply take back your cash plus any interest you earned. In that case, you wouldn’t receive a stream of income from the annuity company.

Lifetime Income Riders

Another way to secure a guaranteed income for the rest of your life is with lifetime annuity income riders.

The income rider is an alternative to annuitization, typically used with more risky types of annuity contracts like variable annuities and fixed-indexed annuities. With these types of annuities, your annuity account might not grow (and, in the case of variable annuities, you could even lose money over time).

The rider simply guarantees to provide regular annuity payments until the annuity owner dies, even if the annuity runs out of money.

Guaranteed Income Depends on the Company

Note that “guaranteed income” means that the income is guaranteed through a legal contract. In other words, the annuity company you choose agrees to make annuity payments consistent with your chosen payout option and is legally required to do so. If you choose the lifetime annuity payout option, they promise to provide income for the rest of your life.

What Types of Annuities Offer Guaranteed Lifetime Income?

Immediate annuities must be annuitized, and all of them offer guaranteed lifetime income as one of their payout options. They also usually offer payout options that will not pay you out until you die.

Deferred annuities are more complicated. Most companies offer lifetime income as one of the payout options. You can select a lifetime payout schedule for any of the following types of deferred annuities:

• Fixed annuities
• Fixed indexed annuities
• Variable annuities
• Single premium annuities
• Deferred premium annuities
• Qualified annuities
• Non-qualified annuities

Again, the important factor isn’t so much the type of annuity, it’s the payout option that you choose. The payout options that you can’t outlive include the following:

• Single-life (also called “straight life” or “life only”). This option provides you with monthly payments (or regular payments on a different cadence) until you die. When you die, payments stop, and any money left in the annuity account is kept by the insurance company.

• Life annuity with period certain. This option provides you with income for the rest of your life. It also has a feature where, if you die before the “certain period” is over, any remaining money in your annuity balance will be passed on to a beneficiary.
• Joint and survivor. This option provides both you and one other person — usually a spouse — with regular income until both of you die. It guarantees that you will both have an income as long as either of you is living.

What Types of Annuities Don’t Offer Guaranteed Lifetime Income?

Again, most types of annuities can offer guaranteed lifetime income. The relevant factor is what payout option you choose.

Here are some of the payout options that don’t provide lifetime income and that you can outlive.

• Period certain. The period certain (sometimes called “term certain”) payout option provides you with a guaranteed income stream for a specified number of years, say 15. After those 15 years are over, your payments will end. If you die within the 15-year period, any remaining payments will go to a named beneficiary.
• Lump-sum payments. One option for deferred income annuities is to receive your annuity account balance as a lump sum payment. Once the term of the annuity is up, you can simply receive your money back, transfer it to an IRA, or to another investment option. If you choose to take your money back, you won’t receive a lifetime income.
• Systematic annuity withdrawals. Many annuity companies also let you make automated withdrawals from your annuity throughout the year. This is a more flexible option so that you can take less or more out of your annuity account, depending on your needs. The downside is that once your annuity account is empty, that’s it. There’s no more income.
• Early withdrawals. You can also take money out of a deferred income before the term is over. This is usually something you only want to do in an emergency because doing so can cost you hefty surrender charges. Also, the IRS may levy a 10% tax on annuity withdrawals you make before you turn 59½. Still, you can withdraw your money early, and this method of withdrawal doesn’t guarantee you a lifetime income.

If you’re not sure which annuity or payout option is best for you, consider consulting with a financial planning professional.

Choosing an Annuity You Can’t Outlive

Annuities are one of the most powerful tools in the retirement planning toolkit.

They are the only financial or insurance products that are able to supplement retirees’ social security and pension payments for an entire lifetime. They offer a safe place to put your retirement savings, providing an investment return without risking your nest egg on stock market volatility. 

Together, these features help give you the peace of mind you need to enter into retirement confidently.

While virtually all annuities give you the option of lifetime income, you can choose how to receive your income in a way that is consistent with your needs and financial objectives. Of course, that can be a complicated decision, so if you’re not sure, get some advice from a financial professional.

If you’re looking for an annuity that you can’t outlive, consider the fixed annuity products offered at Canvas Annuity. They’re low-risk with zero commissions, account charges, or fees.

Apply today.