Kim Borwick, Financial Editor for
  • Written By
    Kim Borwick

    Kim Borwick

    Financial Editor

    Kim Borwick is a writer and editor who studies financial literacy and retirement annuities. She has extensive experience with editing educational content and financial topics for

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    Emily Miller
    Emily Miller, Managing Editor for

    Emily Miller

    Managing Editor

    Managing editor Emily Miller is an award-winning journalist with more than 10 years of experience as a researcher, writer and editor. Throughout her professional career, Emily has covered education, government, health care, crime and breaking news for media organizations in Florida, Washington, D.C. and Texas. She joined the team in 2016.

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    Certified Financial Planner Rubina K. Hossain is chair of the CFP Board's Council of Examinations and past president of the Financial Planning Association. She specializes in preparing and presenting sound holistic financial plans to ensure her clients achieve their goals.

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  • Updated: May 22, 2023
  • 7 min read time
  • This page features 6 Cited Research Articles
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How to Cite's Article

APA Borwick, K. (2023, May 22). Annuity Payout Options. Retrieved June 8, 2023, from

MLA Borwick, Kim. "Annuity Payout Options.", 22 May 2023,

Chicago Borwick, Kim. "Annuity Payout Options." Last modified May 22, 2023.

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Key Takeaways

  • You have two primary options for annuity payments: immediate or deferred.
  • Immediate annuities allow you to turn a lump-sum fee into a steady income stream within a year.
  • Deferred annuities allow you to delay receiving payouts while your principal earns interest, resulting in larger future payouts.

When it comes to retirement savings, a lot of investors want to have it both ways. A Gallup poll found that 85% of investors want guaranteed income to supplement Social Security, and half want the freedom to spend their retirement savings as they choose. Just 27% were willing to give up access to some of their savings to provide the guaranteed stream of income.

Unfortunately, retirees are frequently required to choose between unfettered access to savings and the security of a guaranteed income flow.

This is the case with annuities, which provide guaranteed income in retirement but limit access to the money that funds those income payments for a period of time.

Charts showing U.S. Investors' Agreement With Stat

When setting up an annuity, people do have choices regarding their payment schedules. Each payout structure has unique tradeoffs that you must clearly understand.

Chris Magnussen, licensed insurance agent at, explains how different annuities pay out over time.

When You Start Receiving Payments

One primary factor to consider when purchasing an annuity contract is when you want to start receiving your payments. Are you hoping to start receiving payments right away, or are you planning for your future retirement?

Annuities by Payment Types Payments begin Potential buyers
Immediate Annuity (Income Annuity) Within a year of purchase People expecting to retire soon may use it for supplementary income stream
Deferred Annuity Retirement or other time in future Buyers who want to grow investments tax-free, resulting in larger payments, at retirement

Immediate Annuity (Income Annuity)

One type of immediate annuity, known as a single premium immediate annuity (SPIA), begins paying income within a year of the purchase date.

Deferred income annuities (DIAs) are, despite the “deferred” in their name, immediate annuities with delayed payouts. These products typically start paying income at least 20 years after the contract start date.

If this is confusing, it may help to think of DIAs as deferred payment, immediately annuitized annuities. You may also hear them referred to as “longevity annuities.”

Regardless of when you begin receiving payments from these products, immediate annuities are designed to create an income stream for a set period of time.

Deferred Annuity

Deferred annuities don’t pay the annuitant for many years after they’re purchased. Usually, the payments are deferred until retirement. In the interim, the annuity grows as interest accumulates tax-free. The longer the time between purchase and the start of payments, the more the annuity will grow and the larger the payments will be when they start.

Interested in Buying an Annuity?

Learn about the different types of annuities and find out which one is right for you.

How Long Will Payments Last?

The duration of the income stream is another important consideration. Again, consumers can structure the payout schedule in a way that best meets their needs.

Annuity payout options include:

  • Single Life/Life Only
  • Life Annuity with Period Certain (Fixed Period/Guaranteed Term)
  • Joint and Survivor Annuity
  • Lump-Sum Payment
  • Systematic Annuity Withdrawal
  • Early Withdrawal

Chart Describing Payouts by Annuity Type

Single Life/Life Only

Also known as a straight-life or life-only annuity, a single-life annuity allows you to receive payments your entire life. Unlike some other options that allow for beneficiaries or spouses, this annuity is limited to the lifetime of the annuitant with no survivor benefit. If you die before your entire premium is returned to you, the insurance company keeps the remainder. You can reduce the likelihood of such a scenario by purchasing a life annuity with period certain.

Life Annuity with Period Certain (Fixed Period/Guaranteed Term)

Period certain annuities are similar to straight-life annuities, but they include a minimum time period for the payments — say 10 or 20 years — even if the annuitant dies. If the annuity holder dies before the end of the period, the payments for the rest of that time will go a beneficiary or the annuitant’s estate. Adding the period certain will lower the amount of your monthly payments.

Joint and Survivor Annuity

Joint and survivor annuities guarantee that payments will be made for the remainder of the lives of both the annuitant and another person, typically a spouse. This choice reduces the amount of each payment you would have received with a straight-life annuity or a life annuity with period certain. You can also include a period certain and name a beneficiary. The beneficiary would collect the death benefit if both annuitants die before the end of the period.

Lump-Sum Payment

This option allows the annuitant to receive the entire value of the annuity at one time. This can increase the tax burden substantially because the IRS will require the taxes to be paid in the year the money is distributed.

Systematic Annuity Withdrawal

A systematic annuity withdrawal allows you choose the dollar amount and number of payments without regard to the duration of the income stream. Thus, there is no guarantee that the income will last through the remainder of your life. It is entirely dependent on the cash value of your contract.

Early Withdrawal

If you elect to withdraw money from your annuity before you reach the age of 59 ½, you will have to pay a penalty of 10% to the government, in addition to whatever taxes you owe on the money. If that withdrawal is within five to seven years of purchasing the annuity, you may also owe the annuity provider a surrender charge of up to 20%, depending on how much time has passed since the purchase.

Death Benefit

Your annuity contract may include a provision for a death benefit. Usually, the payout for a designated beneficiary will be the contract value or the amount of the premiums that have been paid.


Beneficiaries of qualified annuities must withdraw the full annuity contract value within 10 years of the annuitant’s death.

Five Year Rule

The five year rule stipulates that the entire cash value of the annuity must be distributed to the beneficiary within five years of the annuitant’s death.

Beneficiary Life Expectancy

The beneficiary of a nonqualified annuity may also choose to have the money distributed according to his or her life expectancy. The life expectancy is used to calculate the minimum amount the beneficiary must withdraw each year. Note that this option is not available to the beneficiaries of qualified annuities.

Survivor Annuitization

Survivor annuitization permits the beneficiary to annuitize the funds. This means the death benefits become a guaranteed stream of income for the beneficiary, with single-life or term-certain payout options.

Do Annuities Have Declared Dividends?

Annuities are different from stocks, which pay dividends and capital gains. Annuity payments are either fixed ahead of time, as is the case with fixed annuities, or tied to the performance of an index or stock portfolio, as with indexed and variable annuities, and do not pay dividends.

Annuity Payout FAQs

What is the best annuity payout option?

There are many types of annuity payout options, each with its own pros and cons. The best is the option that suits your needs. Choosing a life annuitization option is popular because it provides a lifetime income stream, reduces your risk of outliving your retirement savings and typically results in the highest payout.

How are retirement annuities paid out?

Payouts for a retirement annuity can be scheduled to occur on a set schedule, usually monthly, quarterly annually. Immediate annuities allow you to start collecting payments within a year, while deferred annuities can delay payouts for years — or even decades — until you’re ready to retire. Annuity payouts are often sent via ACH deposits, though methods vary.

What happens at the end of an annuity?

What happens at the end of an annuity depends on the type of annuity you have and how your contract is structured. With a Multi-Year Guaranteed Annuity, for example, your contract may auto-renew if you take no action at the end of the term.


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Last Modified: May 22, 2023

6 Cited Research Articles writers adhere to strict sourcing guidelines and use only credible sources of information, including authoritative financial publications, academic organizations, peer-reviewed journals, highly regarded nonprofit organizations, government reports, court records and interviews with qualified experts. You can read more about our commitment to accuracy, fairness and transparency in our editorial guidelines.

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  2. Duncan, T.H. (2020, February 11). Helping an Annuity Beneficiary Understand Distribution Options. Retrieved from
  3. Financial Industry Regulatory Authority. (n.d.). Selecting Retirement Payout Methods. Retrieved from
  4. Lankford, K. (2018, July 11). A Tax-Friendly Way to Get Income for Life. Retrieved from
  5. Office of the Insurance Commissioner Washington State. (n.d.). Annuity payout options. Retrieved from
  6. Saad, L. (2018, January 5). Investors Want Freedom With Retirement Savings. Retrieved from