Income Annuity

AAA

DEFINITION of 'Income Annuity'

Annuities designed to start paying income as soon as the policy is initiated. The income annuity is annuitized immediately, although the underlying income units may be in either fixed or variable investments. As such, the income payments may fluctuate over time.

An income annuity is typically purchased with a lump sum payment, often by people who are at or near retirement.

Also known as an "immediate annuity".

INVESTOPEDIA EXPLAINS 'Income Annuity'

Investors seeking income annuities should have clear picture of how much income will be received and for how long. Most annuities pay out until the death of the annuitant and some pay out until the death of spouse. Although the insurance product may be annuitized immediately, variable investments can allow for some principal protection by participating in equity markets.

Even if all income units are in fixed investments, there may be a provision allowing for a higher return if a specific benchmark index performs extremely well.


RELATED TERMS
  1. Commutation

    The right that a beneficiary has to exchange one type of income ...
  2. Annuity Ladder

    An investment strategy for retirees or near-retirees that entails ...
  3. Period Certain

    An annuitization-method option with which the annuitant selects ...
  4. Fixed Annuity

    An insurance contract in which the insurance company makes fixed ...
  5. Deferred Annuity

    A type of annuity contract that delays payments of income, installments ...
  6. Variable Annuity

    An insurance contract in which, at the end of the accumulation ...
Related Articles
  1. Home & Auto

    Watch Your Back In The Annuity Game

    Find out how to get the upper hand when dealing with this payout challenge.
  2. Retirement

    Weave Your Own Retirement Safety Net

    Build savings to support yourself in case pension plans and Social Security fall through.
  3. Options & Futures

    Deciphering Deferred Annuity Designations

    Tax deferred annuities can be complex arrangements. Discover some of the situations that arise when an owner or annuitant dies and how to reduce tax liability if you're the beneficiary.
  4. Home & Auto

    An Overview Of Annuities

    These contracts provide a guaranteed income stream. Learn how they work and their benefits.
  5. Options & Futures

    Lifetime Income Annuities: The Instant Pension Plan

    If you are looking for a retirement play with a guaranteed structure payout, lifetime income annuities could be the answer.
  6. Economics

    Understanding Perpetuity

    Perpetuity means without end. In finance, a perpetuity is a flow of money that will be received on a regular basis without a specified ending date.
  7. Bonds & Fixed Income

    Should Junk Bond ETFs Be a Part of Your Portfolio?

    Should junk bonds be a part of your portfolio? Here's what you need to know.
  8. Professionals

    Vanguard Readies Muni Bond ETF

    Vanguard is set to roll out a muni bond ETF, the firm's first.
  9. Professionals

    Are Longevity Annuities in 401(k)s a Good Idea?

    An in depth look at the arrival of longevity annuities in 401(k)s and IRAs.
  10. Retirement

    How To Move From Nest Egg To Income?

    Income vs. a nest egg is closely tied to what most of us are ultimately interested in for retirement – maintaining our standard of living and to travel.

You May Also Like

Hot Definitions
  1. Asset Class

    A group of securities that exhibit similar characteristics, behave similarly in the marketplace, and are subject to the same ...
  2. Fiat Money

    Currency that a government has declared to be legal tender, but is not backed by a physical commodity. The value of fiat ...
  3. Interest Rate Risk

    The risk that an investment's value will change due to a change in the absolute level of interest rates, in the spread between ...
  4. Income Effect

    In the context of economic theory, the income effect is the change in an individual's or economy's income and how that change ...
  5. Price-To-Sales Ratio - PSR

    A valuation ratio that compares a company’s stock price to its revenues. The price-to-sales ratio is an indicator of the ...
  6. Hurdle Rate

    The minimum rate of return on a project or investment required by a manager or investor. In order to compensate for risk, ...
Trading Center