Ways To Take Income From An Annuity

**Understanding the Liquidity and Income Features of Fixed Indexed Annuities**

**How to Generate Income from an Annuity**

Fixed indexed annuities are designed to protect your capital from market fluctuations, ensuring that accessing funds does not lead to forced sales at a loss. While surrender penalties may apply in the initial years of your annuity contract if you exceed the allowable penalty-free withdrawals, many clients find that they never incur such penalties. This is primarily because most fixed indexed annuities include various liquidity options to withdraw funds without penalties.

An annuity is fundamentally structured to provide income when necessary. Typically, contracts offer two to three methods for taking income:

1. **Traditional Annuitization**: This option converts the assets in your tax-deferred annuity into periodic payments for a specified time or for your lifetime. The payment amounts are calculated based on life expectancy and an internal fixed interest rate, which is currently low. It is crucial to note that annuitization is generally an irrevocable choice, and we often emphasize that alternative solutions offering lifelong income with more flexibility tend to be more advantageous than traditional annuitization.

2. **Penalty-Free Withdrawals**: After the first year, most fixed indexed annuities permit withdrawals of up to 10% of your total investment annually without incurring penalties from the issuing company. While this strategy does not guarantee a lifelong income, it can effectively help preserve a portion or the entirety of your principal. Should the interest earned meet certain thresholds and you do not fully withdraw your funds during your lifetime, a residual death benefit may be available for your beneficiaries. Withdrawals can be executed as needed or structured systematically (on a monthly or annual basis). For those seeking consistent income, a viable strategy may involve withdrawing a set percentage of the initial investment each year.

3. **Guaranteed Lifetime Withdrawals**: Certain fixed indexed annuities offer an optional guaranteed lifetime withdrawal benefit for you and your spouse. This benefit enables you to receive withdrawals from the annuity even if its cash value decreases to zero. Contracts with this feature typically introduce a term known as Income Account Value, which varies by company. It is essential to understand that this value does not represent actual cash value growth; rather, it serves as an accounting metric for calculating lifetime withdrawal amounts. Many contracts guarantee growth of the income account value until withdrawal begins, ensuring you receive income for life.

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