How Income Annuities Work
You exchange a premium (often a lump sum) for a contractually guaranteed stream of income payments, which can be structured to last for a set period, your lifetime, or the joint lifetime of you and a spouse.
Single Premium Immediate Annuity (SPIA)
Income payments begin almost immediately (typically within 12 months of purchase) — often used by retirees who want to convert savings into income right away.
Deferred Income Annuity (DIA)
Income payments begin at a future date you select, often years after purchase — typically used to plan for a known future income need, such as supplementing income starting at a later retirement age.
Tradeoff: Liquidity for Guaranteed Income
Once annuitized, income annuity payments are generally structured to be irrevocable, meaning you typically give up access to the lump sum in exchange for the guaranteed income stream — an important consideration for emergency liquidity needs.
Key Takeaways
- Income annuities convert savings into a guaranteed income stream rather than preserving liquid access to the lump sum.
- SPIAs begin paying almost immediately; DIAs begin paying at a future date you choose.
- Annuitization is generally irrevocable — carefully consider liquidity needs before committing funds.
Income payments are guaranteed by the claims-paying ability of the issuing insurance company. Once annuitized, access to the underlying premium is generally no longer available. This is educational content, not a recommendation for a specific income strategy — consult a licensed advisor about your liquidity needs before purchasing.
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