An income annuity does one thing: it converts a lump sum into a guaranteed stream of income you cannot outlive. Unlike accumulation annuities (fixed, variable, or indexed), income annuities are not investment vehicles — they are income insurance. You trade a lump sum for a lifetime paycheck.
The Two Types of Income Annuities
SPIA — Single Premium Immediate Annuity
A SPIA begins payments within 12 months of purchase. You make one lump sum payment and start receiving regular income almost immediately.
Best for: Retirees who need income now to cover living expenses.
How it works:
- You pay a single premium (e.g., $200,000)
- You choose a payout option (life-only, joint, period certain — see below)
- Payments begin within 30 days to 12 months
- Payments continue for the duration chosen (typically your lifetime)
DIA — Deferred Income Annuity (Longevity Annuity)
A DIA is purchased now but payments begin at a future date — often 10–30 years later, at age 80 or 85. Also called a longevity annuity, it is the cheapest per dollar of future income because:
- The insurer earns investment returns on your money until payments begin
- Many policyholders will not live to collect (mortality credits)
Best for: Younger retirees who want to insure against outliving their savings at advanced ages without tying up all their assets.
QLAC: A DIA purchased inside a 401(k) or IRA is called a Qualified Longevity Annuity Contract (QLAC). In 2026, you can use up to $200,000 from a qualified account to buy a QLAC. Crucially, QLAC amounts are excluded from RMD calculations until income begins (max start age: 85).
Income Annuity Payout Rates (2026)
For a $100,000 premium:
| Age | SPIA — life-only (male) | SPIA — life-only (female) | SPIA — joint (both age 65) |
|---|---|---|---|
| 60 | ~$545/mo | ~$510/mo | ~$480/mo |
| 65 | ~$670/mo | ~$620/mo | ~$565/mo |
| 70 | ~$800/mo | ~$740/mo | ~$660/mo |
| 75 | ~$990/mo | ~$900/mo | ~$790/mo |
DIA example ($50,000 premium at age 65, payments begin at 80):
- Male: ~$1,800–$2,200/month starting at 80
- Female: ~$1,600–$2,000/month starting at 80
The DIA buys far more income per dollar than the SPIA because of the 15-year deferral.
What Drives Income Annuity Payout Rates
Interest rates: When the Fed raises rates, annuity payout rates increase. The high-rate environment of 2024–2026 makes income annuities significantly more attractive than in 2021 (when a $100,000 SPIA at 65 paid roughly $480/month vs ~$670/month today).
Age: Older buyers receive more per month. Each additional year of age increases payout rates because the insurer expects fewer payments.
Gender: Women receive less per month because they live longer on average.
Payout option: Life-only pays the most. Adding period-certain guarantees or joint coverage reduces monthly income.
How Income Annuity Payments Are Taxed
| Funding source | Tax treatment |
|---|---|
| Non-qualified (after-tax money) | Exclusion ratio applies — partial tax-free, partial taxable |
| IRA or 401(k) rollover (qualified) | 100% of payments taxed as ordinary income |
| QLAC | 100% taxable when payments begin |
Income Annuity vs Other Retirement Income Sources
| Income source | Guaranteed for life? | Inflation protection | Flexibility | Cost |
|---|---|---|---|---|
| SPIA | Yes | No (unless CPI-linked) | None (irrevocable) | No explicit fee |
| Social Security | Yes | Yes (COLA annually) | Limited | None |
| GLWB rider on deferred annuity | Yes | No | Some | 0.5%–1.5%/year |
| 4% portfolio withdrawal | No (can run out) | Yes (invested growth) | Full | Investment fees |
| Pension | Yes | Partial (some plans) | None | None (employer benefit) |
Is an Income Annuity Right for You?
Strong case for a SPIA or DIA:
- You lack a pension and want guaranteed income beyond Social Security
- You are single with no heirs to prioritize
- You are concerned about longevity — family history of living past 90
- You want to simplify retirement income management
Weak case:
- You have significant other guaranteed income (pension, large Social Security)
- You have dependents who need the principal
- You are in poor health and unlikely to live long enough to recoup the premium
- You need flexibility to access the lump sum
A common framework: use a SPIA or DIA to cover essential expenses (housing, food, healthcare) alongside Social Security, then keep remaining assets invested for growth, inflation protection, and flexibility.
Income annuities are one of the core product categories in the annuities hub. See how they pay out in annuity payout options, and explore how income annuities fit your retirement cash flow at the retirement income hub.
The content on Wealthvieu is for informational purposes only and should not be considered financial, tax, or investment advice. Consult a qualified professional before making financial decisions. Full disclaimer · Editorial policy