Chelsey Tucker graduated with a Bachelor of History degree from Metropolitan State University in 2019. She now writes about insurance with her specialty being life insurance and has been quoted on Help Smart Phone and MEL Magazine.

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Dan Walker graduated with a BS in Administrative Management in 2005 and has been working in his family’s insurance agency, FCI Agency, for 15 years. He is licensed as an agent to write property and casualty insurance, including home, auto, umbrella, and dwelling fire insurance. He’s also been featured on sites like

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Reviewed by Daniel Walker
Licensed Auto Insurance Agent

UPDATED: Mar 19, 2020

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What are the different annuity income options?

When deciding on your retirement investment portfolio, there are many avenues to consider, including annuities. There are basically two different annuity income options, fixed or variable, that you can add to your retirement portfolio.

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Out of these two options, there are usually some additional considerations such as single versus joint annuity accounts. The length of payout terms can also vary.

Since annuities are a gamble, as are many investment options, it is not a good idea to invest or rely strictly on income earned from annuities. A well rounded portfolio includes common accounts such as:

  • Cash savings
  • Certificates of deposit (CDs)
  • Investment retirement accounts (IRAs)
  • 401ks
  • Money market funds
  • You can also add stocks, bonds, gold, silver, and real estate to your retirement plan.

Whether an annuity income option is right for you or not depends on several factors, including your age and your general health. The benefit of an annuity is the guaranteed income you will receive if you outlive your payments. The disadvantage is that if you die before you begin to collect, then everything you paid to your annuity goes to your insurance company, not your heirs.

Understanding How Annuities Work

Annuities are considered to be a life insurance policy for life, whereas life insurance is a policy for death. In other words, when you buy a life insurance policy it will pay out to your beneficiaries at the time of your demise. An annuity, on the other hand, pays out to you if you survive.

For example, you can purchase an annuity that is guaranteed to pay you a minimum of $1,000 every month. The insurance company that sells the annuity to you will arrange a payment plan where you will pay them so much money over the course of a set time frame, such as thirty years. This means that during the course of the next 30 years you may spend $30,000 on your annuity.

Your annuity will mature when you are done making payments on it and you can begin to draw money from your investment. At this point you will start to receive your guaranteed payout. At $1,000 per month income earnings, within 30 months (or 2 ½ years) you will start to profit from your annuity. That is because at an income rate of $1,000 per month you will recuperate your $30,000 expenditure within 30 months. Everything received thereafter is your true earnings (or benefit) from your annuity.

If you outlive your annuity investment, then you will be able to benefit from this investment plan. However, if you die before your annuity matures, then you will not receive any benefit at all whatsoever. With other investment plans there is usually a beneficiary, so even if you do not survive, your heirs will be able to benefit from the money. With an annuity, there is no beneficiary and the money defaults to the insurance company.

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Fixed Annuities versus Variable Annuities

Basically, there are two different types of annuity income options. You can choose a fixed annuity option or a variable annuity option. Each has its own set of pros and cons.

Fixed annuities are the safer choice between the two options. Your investment is steadier and once your annuity matures you will receive a guaranteed pre-determined payout every month. Variable annuities are riskier, but they provide you with the option of a fluctuating payment every month based on the performance of your investments.

The choice is up to you and your risk comfort level. With inflation, a variable annuity can pay you a larger amount every month. However, it can also go the opposite direction and pay you less. Your monthly payments will not increase with a fixed annuity, but it will not decrease either.

Deciding on Different Annuity Income Options

Once you decide on adding an annuity to your retirement portfolio, you need to decide on a fixed or variable option. You also need to determine the length of time you want for your annuity payout. You can choose different payout lengths of time such as ten years, twenty years, thirty years, or life.

If you are married you may want to consider a joint life annuity, so that in the event of one person’s death, the spouse will continue to receive the payout benefit until both parties have deceased. This method is usually preferred by married couples because the likeliness of both parties dying before the annuity matures is less likely, providing for a more guaranteed payout benefit.

Like most investment options, there is risk involved. That is why it is always a good idea to have a well rounded retirement portfolio so that if one investment fails, different ones are still there to succeed. Annuities should not be your only retirement investment, but they can help add another dimension to your future income potential.

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