Annuity Income: How It Works For Every Annuity Type

Update: As of January 1, 2025 the QLAC limit increased to $210,000.

Hello there, Stan The Annuity Man, America's annuity agent licensed in all 50 states. That includes the one you're sitting in right now.

Today, we're going to talk about annuity income and cover every type of annuity. There's not just one annuity. You can't hate all annuities because there are different types. Many people think there is only one type, but we're going to go over every single type and how it works. Hopefully, I can explain it to you in non-industry lingo—in complete English or Stanglish. That would be English mixed with Stan's version. Yes, Stanglish. No, I'll drop that. I like Stanglish, though.

I'm going to show paintings to blind people, which means you're going to see them. Now, that doesn't make any sense either. You know what I'm talking about. We're going to talk about annuity income, every single type. I'm going to explain it, you'll understand it, then you'll visit my site to get quotes, and we'll talk. It's going to be so beautiful.

Immediate Annuities

These were the original annuity types introduced in Roman times by the emperor for dutiful Roman soldiers and their families as pension income stream products that paid for the rest of their lives. The word 'annua' in Latin means payment—that's the only Latin word I know, but it's the root word for annuity. The Single Premium Immediate Annuity (SPIA), the Roman annuity, is the original type. It's a transfer of risk based on your life expectancy at the time you take the payment. Interest rates play a secondary role. It's simple and easy to understand. I always tell people if Warren Buffett ever needed an annuity, he'd only buy an Immediate Annuity because it's so easy to understand. You could explain it to a nine-year-old—no offense to nine-year-olds.

Deferred Income Annuities

Deferred Income Annuities (DIA) are cousins of Immediate Annuities with the same structure. It's a transfer of risk, with no moving parts or annual fees. The main difference is the income start date. With Immediate Annuities, income starts 30 days to a year after the policy is issued. Deferred Income Annuities start at 13 months at the earliest and can go out as far as 40 years with some carriers. Most people defer between 13 months to 20 years. Annuity companies enhance the payout the longer they hold the money during the deferral period. Deferred Income Annuities are based on your life expectancy at the time you take the payments, with interest rates playing a secondary role. The longer the money is 'cooked,' the more you get.

Qualified Longevity Annuity Contracts

Qualified Longevity Annuity Contracts (QLACs) are DIAs introduced in 2014 by the IRS and Treasury Department to encourage more lifetime income planning. You can use your traditional IRA for QLACs, with a limitation on the assets used. The 2024 limit is $200,000, and you can defer income up to age 85. This is beneficial for future income planning and addressing inflation. A QLAC allows you to add your spouse as a joint lifetime participant, which is fantastic.

Multi-Year Guaranteed Annuities

Multi-Year Guaranteed Annuities (MYGAs) aren't lifetime income products but are similar to CDs, offering guaranteed annual interest rates for a specific period. They range from two to ten years. If you peel off the interest, it can be considered income. MYGAs typically offer higher rates for longer durations, but current interest rate times are unusual.

Income Riders

Income Riders are growing in popularity and are attached to Variable or Indexed Annuities as future income benefits. Imagine a blank sheet with a line down the middle: one side for accumulation value, the other for the income rider. The income rider is a separate calculation for income, offering control over the asset while providing a pension guarantee. You don't have to use it, but it's there if needed.

For example, someone with $200,000 in a non-IRA account wanting to defer for seven years would consider deferred income annuities and income riders. We shop for the highest contractual guarantee using proprietary calculators at The Annuity Man. Annuity quotes are commodities, so you must shop all carriers for the best deal based on your parameters.

Two crucial questions for future income planning are: What do you want the money to do contractually? (Answer: income) And when do you want those guarantees to start? From there, we determine which product fits your needs, regardless of account type.

Contact us or visit The Annuity Man to access calculators and explore annuities. Request copies of our six owner's manuals—free! We post blogs daily, videos often, and a weekly podcast. Yes, it translates to sales and being a top agent, but I aim to educate you about the benefits and limitations of every product you're considering. We'll provide specimen policies and treat you professionally. See you in the next Stan The Annuity Man blog.