What Is Annuity Income?
An annuity is a financial product that can provide income over time. Many people use annuities as part of a retirement income plan. The idea is simple. You put money into the annuity, and later the annuity can pay income back to you.
The income can last for a set number of years or for the rest of a person’s life, depending on the option chosen.
Immediate Annuity Income
An immediate annuity is designed to start income soon. In many cases, income starts within about 30 days to 12 months after the annuity is set up.
This type of annuity is often used by people who are already retired or close to retirement and want income soon.
Example:
A person retires at age 65 and puts money into an immediate annuity. The annuity may begin sending monthly income payments within a few months.
Deferred Annuity Income
A deferred annuity is different. With a deferred annuity, income starts later. The money is placed into the annuity and grows over time. Income begins at a future date.
For example:
A person sets up a deferred annuity at age 55. They may choose to start income at age 65. During those 10 years, the annuity is in the growth phase. After that, it moves into the income phase.
The Two Phases of an Annuity
Most annuities have two main phases.
The first phase is the accumulation phase. This is when money is being added and growing.
The second phase is the income phase. This is when the annuity starts paying income.
Understanding these two phases helps people understand when income begins.
Choosing When Income Starts
Many annuities allow the owner to choose when income starts. Some people choose to start income right away. Others choose to wait several years.
People often choose a later income start date if they are still working and do not need income yet.
Others choose earlier income if they are already retired and need income now.
Monthly Income Payments
Most annuities pay income monthly, but some pay quarterly or yearly. Monthly income is common because it works like a paycheck in retirement.
This is why annuities are sometimes described as a way to create retirement income that arrives on a schedule.
Income for Life vs Income for a Period of Time
When annuity income starts, the payments can last for different lengths of time.
Some common options include:
- Income for life
- Income for 10 years
- Income for 20 years
- Income for life with a minimum number of years
Each option changes how long income lasts and how the payments are structured.
Why Timing Matters
The age when income starts can affect the payment amount. In general, starting income later may result in larger payments because the money has more time to grow and the payments are spread over a shorter time period.
Starting income earlier may result in smaller payments because the payments may last longer.
This is one reason people think carefully about when they want income to begin.
How Annuities Fit Into Retirement Income
Many retirees use multiple income sources. These may include:
- Social Security
- Retirement accounts
- Savings
- Pensions
- Annuities
An annuity is just one piece of a retirement income plan. Some people use annuities to help cover basic monthly expenses such as housing, food, and utilities.
Simple Example Scenario
Here is a simple example to show how timing works.
A person is age 60 and plans to retire at 67. They set up a deferred annuity at age 60. The annuity grows for 7 years. At age 67, the income starts and pays monthly income during retirement.
This is just an example, but it shows how annuity income can be timed to start when retirement begins.
Final Thoughts
Annuity income can start right away or years in the future. The start date depends on the type of annuity and the income option selected. Some people want income now, while others want income later in retirement.
This article is for educational purposes only and is not financial, tax, or legal advice.
