Your retirement income strategy should reflect your long-term goals.
A fixed annuity can be an effective tool for creating dependable retirement income. For many retirees and pre-retirees, it offers the opportunity to receive a predictable stream of payments over a set period or for the rest of their lives, backed by the claims-paying ability of the issuing insurance company. Fixed annuities may also provide tax-deferred growth and can help reduce some of the uncertainty that often comes with market fluctuations.
The amount of income an annuity generates depends on several factors, including your age when payments begin, the value accumulated within the annuity, and, in some cases, additional underwriting factors established by the insurer.
When the time comes to begin receiving income—typically at or near retirement—you’ll be asked to choose how your annuity will pay out. Selecting the right payout option is an important decision because it affects not only the amount of income you receive, but also how long payments continue and whether benefits can pass to your beneficiaries.
A Review of the Basic Payout Choices
Understanding your options can help you choose the payout structure that best supports your retirement objectives.
Life Only
This option provides guaranteed income for the rest of your life and generally offers the highest payment amount among the available choices. Payments can typically be received monthly, quarterly, semiannually, or annually. Once the annuitant passes away, however, payments stop and no remaining benefit is paid to beneficiaries.
Life with Term Certain
This option combines lifetime income with additional protection for your loved ones. If you pass away before the selected guaranteed period—commonly 5, 10, 15, or 20 years—remaining payments continue to your designated beneficiary until the guarantee period has been satisfied.
Joint and Survivor Life
Designed for couples or two covered individuals, this option provides income for both lives. After one individual passes away, the surviving annuitant continues receiving either the full payment or a predetermined percentage for the remainder of their lifetime, depending on the contract terms.
Installment Refund Life
With this payout method, if you pass away before receiving payments equal to the amount originally invested in the annuity, any remaining balance is distributed to your beneficiary through installment payments.
Unit Refund Life
This option works similarly to the installment refund feature, but instead of receiving payments over time, your beneficiary receives the remaining value in a single lump-sum payment.
Payments for a Specified Period
Rather than providing lifetime income, this option pays benefits over a predetermined period, which may range from one to 30 years. If you die before the selected period ends, the remaining payments continue to your beneficiary until the scheduled payout period has been completed.
Choosing the Right Option for Your Retirement
Every retirement plan is unique, and there is no single annuity payout option that is right for everyone. The best choice depends on your income needs, health, family situation, legacy goals, and the other financial resources available to you throughout retirement.
At Heritage Financial Planning, we believe annuities should never be viewed in isolation. Instead, they should be evaluated as one component of a comprehensive retirement income strategy. By understanding how each payout option works—and how it fits alongside Social Security, investment accounts, pensions, taxes, and estate planning—you can make more informed decisions that support your long-term financial confidence.
How Our HFP S.T.A.R. Strategy Can Help
Choosing when and how to generate retirement income is one of the most important financial decisions you’ll make. That’s why we’ve developed our proprietary HFP S.T.A.R. Strategy (Seasonal Transition into Advanced Retirement)—a comprehensive planning process designed to help individuals transition into retirement with greater clarity and confidence.
Rather than focusing on a single financial product, our HFP S.T.A.R. Strategy coordinates the many moving parts of retirement planning, including income planning, investment management, tax efficiency, healthcare considerations, risk management, and long-term lifestyle goals. If an annuity is appropriate for your situation, we’ll help you determine how it fits into your overall retirement income strategy and whether its payout options align with your personal objectives.
If you’re preparing for retirement or evaluating your retirement income options, we’d love the opportunity to help. Contact Heritage Financial Planning today to schedule a personalized consultation and learn how our HFP S.T.A.R. Strategy can help you build a retirement plan designed around your goals.
Click here to learn more about our HFP STAR Strategy process.
Sources:
1. FINRA Investor Education Foundation. Annuities. Financial Industry Regulatory Authority. https://www.finra.org/investors/investing/investment-products/insurance/annuities
2. U.S. Securities and Exchange Commission (SEC). Updated Investor Bulletin: Variable Annuities. https://www.investor.gov/introduction-investing/general-resources/news-alerts/alerts-bulletins/investor-bulletins/updated
3. Insured Retirement Institute (IRI). Retirement Income and Annuities Resources. https://www.myirionline.org
4. National Association of Insurance Commissioners (NAIC). Consumer Guide to Understanding Annuities. https://content.naic.org/consumer
5. Internal Revenue Service (IRS). Publication 575: Pension and Annuity Income. https://www.irs.gov/forms-pubs/about-publication-575
