Photo of a couple who have learned about annuities and guaranteed retirement income.

Annuities 101: The basics on guaranteed retirement income

Those years of hard work are about to pay off—retirement is just around the corner. Ensuring your money lasts throughout your golden years is essential. An annuity can help with just that, by providing guaranteed income for the rest of your life.

Learn the basics about annuities, and see if one might be right for your retirement financial plan.

What is an annuity?

An annuity is a contract purchased from an insurance company to both save for retirement and provide retirement income. There are many types of annuities. Some protect your income from loss, some help you save by offering a fixed rate of return for a set period of time, and others are tied to market performance to help maximize your potential growth.

Most annuities allow you to save tax-deferred, providing compounding interest on both your initial premium(s) and any earnings. All can be used to create a source of guaranteed income in retirement.

Annuities are insurance for your retirement income. They’re a way to convert a portion of the retirement savings assets you already have into a steady income stream for life. Think of it as receiving part of the paycheck you got while employed.

How do income annuities work?

There are 2 main types of income annuities, which can support your current or future retirement income needs:

  • Immediate Income Annuities (SPIAs) are meant for those who are retired or nearing retirement and are looking for guaranteed income to begin within a year. An immediate income annuity converts a portion of your retirement savings to create a guaranteed, regular stream of income. Your income payments are protected from market risk, and when you choose a lifetime income payout option, you can’t outlive them.
  • Deferred Income Annuities (DIAs) are for those who are still saving for retirement and need guaranteed income payments to begin in the future. A deferred income annuity lets you purchase future guaranteed income with retirement savings you already have. You choose when and how often you’ll receive payments.

Why should I consider an annuity?

Your 401(k)s and IRAs help provide income in retirement, but they can’t guarantee you income for life. And with people living longer than previous generations, running out of money is a possibility.

An annuity helps you—and often your spouse or family—get income for as long as you need it. It can supplement other guaranteed income you might have. Use it to cover the essentials—so you can budget your other money for the fun stuff.

Guarantee your income in retirement

Make sure you’ll have income you can count on in retirement. 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.