Not your grandmother’s annuity

While annuities have been around for a long time, they have evolved over the years to meet the changing needs and preferences of retirees. Today’s annuities go beyond their original design where an individual would give a lump sum of money to an insurance company in exchange for a series of guaranteed annuity income payments. 

People do still purchase annuities to secure lifetime income in retirement, but some annuities now offer two ways to get it:

  • The standard way, through “annuitization,” or

  • A new, more flexible way—the Guaranteed Living Benefit1

In this article, we’ll review how Guaranteed Living Benefits provide the core annuity benefit of lifetime income without giving up access to your money. We’ll also take a closer look at annuitization. And finally, we’ll compare Guaranteed Living Benefits to annuitization so you can make a more informed choice about your lifetime income options.

 

Now more flexibility and control with a Guaranteed Living Benefit2

To help provide more flexibility, choice and control when generating lifetime income, some annuities now offer Guaranteed Living Benefits as an alternative to annuitization. These benefits offer several key advantages compared to annuitization.

With a Guaranteed Living Benefit:

  • The annuity owner can take ongoing withdrawals from their account for lifetime income.
    • As withdrawals are taken, the account’s remaining balance will decrease.
    • Even if the account value is reduced to zero due to ongoing withdrawals, lifetime income payments will continue to be paid by the insurance company for as long as the annuity owner lives.3
       
  • The annuity owner retains access to their account value.

  • The annuity contract’s death benefit remains in effect.

 

Hypothetical illustration of how a Guaranteed Living Benefit can work

Hypothetical example is not to scale and is for illustrative purposes only.

 

Chart illustrates how lifetime income payments continue for life even if the account value is reduced to zero due to ongoing annual withdrawals.

To receive the benefit of the lifetime income guarantee, withdrawals need to be taken within certain defined parameters, which are spelled out at the time annuity is purchased. For example, a Guaranteed Living Benefit may offer 5% lifetime withdrawals. That means $100,000 would provide $5,000 of annual guaranteed income for life.

 

Access if and when you need it

With a Guaranteed Living Benefit, the annuity owner still has access to their money should they need it—perhaps for an unexpected expense in retirement, such as a home or car repair. However, if withdrawals exceed the annual limit (for example, $5,000 from our earlier discussion), these withdrawals will reduce the amount that can be withdrawn in the future and depending on the size of the withdrawal, potentially eliminate the lifetime income guarantee.

Guaranteed Living Benefits are not available with all annuities. If offered, they may be automatically included in the annuity contract or they may be an optional feature that can be added at the time of purchase for an additional cost. Some Guaranteed Living Benefits can also help annuity owners automatically grow their future retirement income. Additional fees, age restrictions and other limitations may apply to Guaranteed Living Benefits.

 

A closer look at annuitization

Now that we’ve reviewed Guaranteed Living Benefits, let’s take a closer look at the other way to generate lifetime income from an annuity: Annuitization.

While it sounds complicated, annuitization is simply the process of converting an annuity’s value into a series of annuity income payments. There is no additional cost associated with annuitization and the available annuity payment options may include:

  • Life annuity option: Provides lifetime income for as long as one person is living

  • Joint and survivor life annuity option: Provides lifetime income for as long as one of two people (typically spouses) is living

  • Period certain annuity option: Provides income for a fixed period of time—for example, 10, 15 or 20 years

Once an annuity owner annuitizes, they no longer have access to their account value as the value has been exchanged for a series of guaranteed income payments. Annuitization is typically irrevocable. Once the annuity is annuitized, there’s often no reversing this process. While annuitization is less flexible than a Guaranteed Living Benefit, income rates are generally higher.

 

Comparing the two ways to get lifetime income from an annuity

 Guaranteed Living Benefit2Annuitization
Owner receives guaranteed lifetime income3✔✔
Owner retains access to their account value✔No
There is a guaranteed death benefit✔Depends on the annuity payment option selected4
Additional cost may apply✔No

Keep in mind, not all annuities offer Guaranteed Living Benefits.

 

To learn more, take the next step and ask your financial professional about annuities.

1Annuity guarantees are backed by the claims-paying ability of the issuing insurance company.

2Please see the contract or prospectus for complete details about the annuity and Guaranteed Living Benefit you may be considering.

3Withdrawals must be taken within certain parameters to realize the benefits of a Guaranteed Living Benefit. Joint Life income options are also typically available.

4Note: Depending on the type of annuity income payment option selected by the annuity owner, a beneficiary may receive certain remaining annuity income payments guaranteed under the annuity income payment option, if applicable.

 

Annuities are long-term insurance products designed for retirement. In the growth stage, they can help build assets on a tax-deferred basis. In the income stage, they can provide protected lifetime income through standard or optional features. A contract can be annuitized in order to receive lifetime income payments for no additional cost if a lifetime annuity option is chosen. Income protection features such as Guaranteed Living Benefits may be optional or standard. Additional fees, age restrictions, withdrawal parameters, and other limitations apply. With variable annuities, certain investment requirements also apply.

 

Early withdrawals may be subject to withdrawal charges and a Market Value Adjustment (MVA) may also apply to certain fixed annuities and index annuities. Partial withdrawals may reduce benefits available under the contract, as well as the amount available upon a full surrender. Withdrawals of taxable amounts are subject to ordinary income tax and, if taken prior to age 59½, an additional 10% federal  tax may apply. An investment in a variable annuity or registered index-linked annuity involves investment risk, including the possible loss of principal. The contract, when surrendered, may be worth more or less than the total amount invested. Keep in mind, for retirement accounts (such as IRAs), an annuity provides no additional tax-deferred benefit beyond that provided by the retirement account itself.

 

Variable annuities are sold by prospectus only. The prospectuses for each underlying fund as well as the variable annuity contract describe the investment objectives, risks, fees, charges, expenses, and other information for each, respectively. The statutory and summary prospectuses for each underlying fund and the variable annuity contract should be considered carefully before investing. Please contact your insurance and securities licensed financial professional or call 800-445-7862 to obtain any of those prospectuses, which should be read carefully before investing.

 

Registered index-linked annuities are sold by prospectus only. The prospectus contains the investment objectives, risks, fees, charges, expenses and other information regarding the contract, which should be considered carefully before investing. A prospectus and summary prospectus if available may be obtained by calling 1-877-445-1262. Investors should read the prospectus carefully before investing.

 

All contract and optional benefit guarantees, including any fixed account crediting rates or annuity rates, are backed by the claims-paying ability of the issuing insurance company. They are not obligations of or backed by the distributor, insurance agency or any affiliates of those entities and none makes any representations or guarantees regarding the claims-paying ability of the issuing insurance company. Products and features may vary by state and may not be available in all states. The purchase of an annuity is not required for, and is not a term of, the provision of any banking service or activity.

 

Annuity contracts issued by American General Life Insurance Company (AGL), Houston, TX except in New York, where issued by The United States Life Insurance Company in the City of New York (US Life). Certain annuities are issued by The Variable Annuity Life Insurance Company (VALIC), Houston, TX. Variable annuities and registered index-linked annuities are distributed by Corebridge Capital Services, Inc. (CCS), member FINRA, 21650 Oxnard Street, Suite 750, Woodland Hills, CA 91367-4997, 1-800-445-7862. Issuing companies AGL, US Life and VALIC are responsible for financial obligations of insurance products. AGL does not solicit, issue or deliver policies or contracts in the state of New York. Products and services may not be available in all states and product features may vary by state. Please refer to the contract.