Annuities with a guaranteed lifetime-income rider, for instance, “often provide an income interest credit,” adds Steve Brubaker, wealth management advisor at Exit & Retirement Strategies in Denver. “The longer you wait, the higher your income will be. However, with the unknown factor of life expectancy, you’ll never know how long you’ll be receiving that income.”

Advisors, he says, must help clients “walk a fine line between maximizing their income per year and maximizing the income in the product.”

And The Case For Not Waiting

Nevertheless, there can be some benefit to taking income sooner rather than later. “An argument can be made to turn on the income as soon as possible,” says Peter Longo, regional insured solutions director at Philadelphia-based Janney Montgomery Scott, “typically after age 59 and a half, to avoid the 10% federal excise tax penalty for early withdrawals.”

Longo’s reasoning is clear. “The insurance company does not pay out of its pocket until the client has depleted all of his or her own money from the annuity policy,” he says. “Therefore, the longer one lives, and the sooner the contract value goes to zero, the more money will be received from the insurance company’s pocket.”

Like life insurance policies, annuities have payout rates typically tied to life-expectancy tables, he says. Clients who live beyond their life expectancy “benefit more from the lifetime income options that annuities provide,” says Longo.

Social Security

For most retirees, though, the primary income conundrum concerns Social Security. Many are tempted to start collecting Social Security at age 62, but waiting to age 70 can greatly increase payouts. “That’s where an annuity, such as a single premium immediate annuity (SPIA), can be the right solution,” says Hawley at Nationwide, referring to the simple annuity contract in which clients pay an up-front premium for the promise of a guaranteed lifetime income thereafter.

Such an arrangement, he says, can help retirees manage the income gap while they’re waiting for Social Security benefits. “Using an immediate annuity for income now and postponing Social Security until later allows clients to maximize their income benefits and generate significantly more guaranteed retirement income over their lifetime,” he says.

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