Income Annuity

Income Annuity

A fixed or variable annuity that pays a certain monthly or (rarely) annual sum for the term of the annuity. The payments begin as soon as the annuitant buys the annuity. Usually, the annuity's term is the remainder of the annuitant's life, and sometimes the life of his/her surviving spouse, depending on the nature of the particular contract. An income annuity is usually purchased for a lump sum, and is designed to provide a stable income for the annuitant, generally in retirement. See also: Lifetime annuity, Pension.

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Income annuity. An income annuity, sometimes called an immediate annuity, pays an annual income, usually in monthly installments.

Your income is based on the annuity's price, your age (and your joint annuitant's age if you name one), the term length, and the specific details of the contract. It's also dependent on the annuity provider's ability to meet its obligations.

You might buy an income annuity with assets from your 401(k) plan, or your plan may buy an income annuity on your behalf. In that case, the annuity provider guarantees an income that will satisfy your minimum required distribution.