Photo of a woman who has learned about income annuities and if they are right for her retirement income plan.

Annuity basics: Is an income annuity right for you?

Retirement brings the freedom to enjoy life on your terms. Unfortunately, it doesn’t come with a paycheck—but what if you could still receive regular income?

An income annuity guarantees that regular income won’t stop once you’re no longer working. It can be a great fit if you’re about to enter retirement, or you’re already enjoying it.

Create your own retirement income

Just like other types of annuities, an income annuity is an insurance contract. It provides you regular income, guaranteed to last through retirement. Here’s how it works:

  • You purchase an income annuity with a portion of your retirement savings, either in a one-time lump sum or a series of payments.
  • In exchange, you receive income. You can choose to receive guaranteed income for life, or for a fixed period of time—depending on your needs.
  • When you’re ready to receive income (now or in the future), you’ll get guaranteed income payments on a monthly, quarterly, semiannual, or annual basis.
  • Undistributed funds may transfer to a beneficiary when you die. Or, if you choose a joint or survivorship option, you can provide guaranteed lifetime income payments for a partner or family member, too.

Your payment amounts are protected from the ups and downs of the stock market. So you can rest easy knowing you’ll have predictable, continuous income for as long as you need it. 

Get paid now, or later

There are 2 main ways an income annuity can pay you: immediate or deferred. An immediate income annuity converts your retirement savings (paid in a one-time lump sum) into income payments right away. It could be a good fit if you want to start receiving guaranteed income within the next 12 months.

Deferred income annuities are a better option if retirement is still a few years away (or longer), or if you don’t need income right away. You choose a future date (anywhere from 13 months to 30 years) to start receiving guaranteed income payments.

Access your money in an emergency

Because income annuities aren’t liquid investments, you’ll have limited access to your money outside of the payment terms of your contract.

However, some income annuities offer liquidity options that allow a one-time, penalty-free withdrawal if unexpected expenses arise.

Decide if an income annuity is right for you

Consider an income annuity if you want to:

  • Ensure a steady stream of income for life by converting retirement savings you already have into regular, predictable payments (now or in the future).
  • Protect your money from inflation. Income annuities sometimes offer optional riders that let you increase your income payments to help keep up with inflation.
  • Provide for your loved ones when you’re gone. Income annuities may offer payment options that include death benefit protection. For example, your beneficiary may receive unused funds when you die.

Learn more about income annuities

Guarantees are based on the claims-paying ability of Principal Life Insurance Company.

This document is intended to be educational in nature and is not intended to be taken as a recommendation. Consult with your financial professional to discuss retirement planning.

Annuity products and services are offered through Principal Life Insurance Company, a member company of Principal, Des Moines, Iowa 50392.

Principal and symbol design and Principal Financial Group are trademarks and service marks of Principal Financial Services, Inc., a member of the Principal Financial Group.