“Guaranteed” describes the insurer’s contractual promise. It is not protection from every problem, and a level income can lose buying power to inflation year after year.
A guaranteed annuity generally involves using retirement capital to purchase an income promise from an insurer. Depending on the option chosen, the income may continue for life and may include increases, a guaranteed payment period or income for a surviving spouse.
The trade-off is flexibility. Once the contract is established, you may not have access to the capital or be able to change the terms. A higher starting income may come with lower future increases or less protection for a spouse. Added guarantees usually affect the initial amount.
The strength and terms of the insurer’s commitment matter, as do tax and what happens on death.
Try this now
For any quotation, record the starting income, increase pattern, spouse’s percentage, guarantee period, payment frequency and what value, if any, remains for beneficiaries.
Ask your advisor
- Which features explain the difference between these quotations?
- How would inflation affect the income over ten or twenty years?
- Which decisions become irreversible once the annuity starts?
Guaranteed-annuity terms are product-specific and can be difficult to reverse. Compare the formal quotations and obtain specialist advice before committing.