Income Annuities

Guaranteeing a Lifetime of Retirement Income

For many retirees, the biggest financial fear isn’t outliving their money – it’s having their money outlive them. The uncertainty of market returns, the rising cost of living, and increasing lifespans make creating a reliable income stream a paramount concern. Income Annuities, often referred to as “longevity insurance,” are specifically designed to address this challenge, offering guaranteed, predictable payments that can last for a set period or, most powerfully, for the rest of your life. Shepro Insurance Services, led by Terry Shepro and Josh Peters, specializes in helping individuals transform their retirement savings into a steady, worry-free income stream, ensuring peace of mind throughout their golden years.

What is an Income Annuity?

An Income Annuity is a contract with an insurance company where, in exchange for a lump sum of money (or periodic payments), the insurer promises to provide you with a guaranteed series of payments. These payments can begin immediately or be deferred until a future date, and they can continue for a specified number of years or, crucially, for the remainder of your life, regardless of how long you live. Its primary purpose is to provide a reliable income floor, eliminating the risk of outliving your savings.

How Income Annuities Work (Key Types):

The two main categories of income annuities are based on when the income payments begin:

1. Immediate Annuity (SPIA – Single Premium Immediate Annuity):
   • Mechanism: You make a single, lump-sum premium payment to the insurance company.
   • Income Start: Income payments begin almost immediately, typically within one month to one year after the premium is paid.
   • Best For: Individuals who are already retired or very close to retirement and need to convert a portion of their savings into an immediate, predictable income stream.
2. Deferred Income Annuity (DIA):
   • Mechanism: You make a single lump-sum payment or a series of payments.
   • Income Start: Income payments are deferred and begin at a specific future date that you choose (e.g., 5, 10, 20 years down the road, or at a specific age like 80 or 85).
   • Best For: Individuals who are still accumulating retirement savings but want to guarantee a future income stream that kicks in later in life, acting as “longevity insurance” to cover very late-life expenses.
   • Qualified Longevity Annuity Contract (QLAC): A special type of DIA that can be purchased with qualified retirement funds (e.g., from an IRA or 401(k)). A key benefit of a QLAC is that the amount invested in it is excluded from Required Minimum Distributions (RMDs) until payments begin, allowing funds to grow tax-deferred for longer.

Key Features and Benefits of Income Annuities:

• Guaranteed Income for Life: The most compelling feature is the certainty of receiving payments for as long as you live, eliminating the fear of outliving your money. This is a form of “longevity insurance.”
• Predictable Cash Flow: Provides a stable and predictable income stream, making retirement budgeting much simpler and reducing reliance on volatile market investments for essential expenses.
• Removes Investment Risk: Once you purchase an income annuity, the insurance company assumes the investment risk. You no longer have to worry about market downturns affecting a portion of your income.
• Tax Efficiency: For non-qualified annuities, a portion of each income payment is considered a return of principal and is tax-free, while the earnings portion is taxed as ordinary income. For qualified annuities (like QLACs), the entire payment is generally taxed as ordinary income, but offers RMD deferral benefits.
• Simplifies Retirement Planning: By securing a guaranteed income floor, you can potentially take more calculated risks with other parts of your portfolio, knowing your basic expenses are covered.
• Avoids Probate: Like other annuities, income annuities typically have designated beneficiaries, ensuring any remaining value (depending on payout option) passes directly to your heirs without probate.

Customizable Payout Options:

Income annuities offer various options for how income is paid, allowing for personalization:

• Life Only: Provides the highest income payment, but payments stop when the annuitant dies, with no remaining value for beneficiaries.
• Life with Period Certain: Guarantees payments for the rest of your life, but also for a minimum specified period (e.g., 10 or 20 years). If you die before the period certain ends, your beneficiaries receive payments for the remainder of that period.
• Joint and Survivor: Provides income for two lives (e.g., you and your spouse). Payments continue as long as either annuitant is alive, often with a reduced amount to the survivor.
• Installment Refund: If you die before receiving total payments equal to your initial premium, your beneficiaries receive the difference as a lump sum or in installments.

Important Considerations and Disadvantages:

• Loss of Liquidity: Once you annuitize, your money is converted into an income stream, and it’s generally illiquid. You typically cannot get your lump sum back.
• Inflation Risk: A fixed income stream may lose purchasing power over time due to inflation, unless an inflation rider is purchased (which usually reduces initial payout).
• Irrevocability: Annuitization is often an irreversible decision, making careful planning essential.
• No Capital Appreciation: The money used to purchase the annuity is no longer part of your investment portfolio and will not grow with the market.

The Expert Guidance of Shepro Insurance Services:

Deciding whether an income annuity is right for your retirement plan and choosing the optimal payout structure can be complex. Terry Shepro and Josh Peters at Shepro Insurance Services provide invaluable expertise by:

• Analyzing Your Income Needs: Helping you determine how much guaranteed income you need to cover essential expenses in retirement.
• Comparing Immediate vs. Deferred Options: Guiding you through the advantages of starting income now versus deferring it for future longevity protection.
• Evaluating Payout Structures: Explaining the trade-offs between different payout options (Life Only, Period Certain, Joint and Survivor) to match your family situation and goals.
• Assessing Longevity Risk: Helping you understand how a guaranteed income stream can hedge against the risk of outliving your other savings.
• Accessing Top Carriers: Connecting you with reputable insurance companies offering competitive income annuity rates and features.
• Integrating with Your Overall Plan: Showing you how an income annuity can complement Social Security, pensions, and other retirement assets to create a robust income strategy.

Shepro Insurance Services is committed to providing clarity and confidence in your retirement planning. We help you unlock the power of Income Annuities to build a predictable, guaranteed foundation for your financial future, ensuring peace of mind that your money will last as long as you do. Contact us today for a personalized consultation to secure your retirement income.