How an Annuity Can Turn Your Savings Into a Monthly Paycheck

When you worked, a paycheck came every two weeks. You didn't have to think about it. Then you retire, and the paycheck stops.

Many people have savings, but turning a pile of savings into steady monthly income is hard. How much can you take out each month? What if the market drops? What if you live to 95?

An income annuity is one way to answer those questions. This guide explains how it works, in plain words, along with the honest trade-offs.

What an Income Annuity Is

An annuity is a contract with an insurance company. There are several kinds. This article is about the simplest one: an income annuity.

Here is how it works:

• You give the insurance company a sum of money, all at once.
• The company promises to send you a check every month.
• Depending on the option you choose, the checks last for a set number of years or for the rest of your life.

In some ways it works like a pension: you hand over the money, and the insurance company promises a monthly check, backed by its claims-paying ability. Unlike a pension, it doesn't come from an employer and isn't backed by the government.

Two Ways to Start the Checks

Right away. Your checks start within about a year of buying. People often choose this at or after retirement, when they want income now.

Later. You buy now, and the checks start years from now. The longer you wait, the bigger each check usually is. Some people use this to make sure they'll have income if they live into their late 80s or 90s.

Choices You Make

When you set it up, you decide a few things:

• Just you, or you and your spouse. A "joint" annuity keeps paying as long as either of you is alive. The checks are smaller, but the spouse who stays keeps getting them, sometimes at a lower amount you choose when you set it up.
• What happens if you pass away early. Some options guarantee payments for a minimum number of years, or return any unpaid amount to the person you name. Adding these protections makes each check a little smaller.
• Whether the check grows with inflation. Some annuities offer checks that rise over time. They start lower in exchange.

Each choice trades a bigger check today for more protection. There's no wrong choice, only the one that fits your family.

What It Does Well

• Steady income you don't have to manage. The check comes every month, and with a fixed income annuity it doesn't go up and down with the stock market.
• Income for as long as you live, if you choose lifetime payments, backed by the insurance company's claims-paying ability.
• Peace of mind. Many people say the biggest benefit is not worrying about running out.
• It covers the basics. Some families add up their must-pay bills (housing, food, utilities, insurance) and set up enough steady income, from Social Security plus an annuity, to cover them.

The Honest Trade-Offs

An annuity isn't right for everyone, and it isn't right for all of your money.

• Your money is less available. Once you buy an income annuity, you usually can't take that money back out. Keep enough savings on hand for emergencies, home repairs and family needs.
• Inflation. A check that never grows buys less over time.
• Some kinds have fees and surrender charges. If you cancel early, you may pay a charge. Always ask what they are, and how long they last.
• It's only as strong as the company. The checks depend on the insurance company's claims-paying ability. That's why the company's financial strength matters. Ask how the company is rated.

You also get a "free look" period after you buy, printed in your contract. During that time you can review it and cancel for a refund.

A Simple Way to Think About It

Picture your retirement money in three buckets:

1. Steady income: Social Security, any pension, and an annuity if you choose one (an annuity's guarantees come from the insurance company, not the government). 2. Ready money: savings you can reach anytime, for emergencies and surprises. 3. Long-term money: savings you can leave alone for years.

An income annuity belongs only in the first bucket. It works best when the other two are taken care of too.

Questions to Ask Before You Buy

• Which kind of annuity is this, and what exactly does it promise?
• When do the checks start, and how long do they last?
• What happens to the money if I pass away early?
• Are there fees or surrender charges? For how long?
• How strong is the insurance company?
• How long is the free look period?

If anyone can't answer these in plain words, slow down.

A Simple Next Step

If you'd like to see whether part of your savings could become a steady monthly check, Kevin can walk you through it in a short call, in English or Spanish. He works with more than one insurance company, so you can compare honestly, and there's no pressure to decide anything. Pick a time that works for you, or call or text (848) 212-8787.

Kevin is a licensed life insurance agent in New Jersey and Georgia. This article is general education, not tax, legal or investment advice. Annuity features, fees and payments vary by company and by state, and guarantees are backed by the claims-paying ability of the issuing insurance company. An annuity is not a bank product, is not FDIC-insured and is not insured by any federal government agency.

FAQs: Annuities for Retirement Income

This article is general education, not tax, legal or investment advice. Rules and numbers can change, so check your own situation before you decide.

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