4 ways to draw income from an annuity

Retirement planning looks different today than it did even a decade ago. Market volatility, rising health care costs and longer lifespans make guaranteed income in retirement more important than ever. Yet many people aren’t sure how to turn their savings into steady income. Outside Social Security and pension plans, annuities provide one of the few ways to create a guaranteed lifetime income. 

As annuities evolve to meet changing needs, there are more options available today and their popularity as a solution for retirement is growing. As of September 2025, annuity sales in the U.S. have set records every year since 2022, according to LIMRA. 

Beginning with common understanding

Before talking about how to generate lifetime income from an annuity, it can help to simplify conversations to make sure clients have a general understanding. Help clients understand they could receive guaranteed payments for as long as they live. That income can come from a specific type of annuity like a single premium immediate annuity (SPIA) or from income riders or annuitization available with other types of annuities. In addition to SPIAs, fixed and fixed indexed annuities (FIAs) also can be structured to provide guaranteed income throughout retirement. 

Although there’s not a one-size-fits-all answer for when a client should start taking income from an annuity, people often begin when they leave the workforce. Ideal timing depends on a client’s goals, tax considerations and financial needs. You can help clients understand the best options available to help achieve greater financial confidence in retirement. Sharing four ways to draw income from annuities can help guide those conversations.

1. Purchase a SPIA, also known as an income annuity.

SPIAs are commonly known as a simple, straightforward solution for creating a guaranteed stream of retirement income. In return for a single premium, a SPIA can provide a guaranteed stream of income for life. A retiree can choose to receive monthly, quarterly, semiannual or annual payouts throughout retirement. 

2. Convert the value of an in-force deferred annuity contract into a guaranteed stream of income through a process called annuitization.

When a client has a deferred annuity and wishes to turn their retirement savings into income, they can do so through annuitization. This process allows a client to convert the money they’ve put into an annuity into regular, guaranteed payments for a specified period or the rest of their life. With a fixed annuity, the payments are protected from market volatility and can provide flexibility based on a client’s needs. It’s important to keep in mind that payments may end upon a client’s death or the death of their beneficiary. 

3. Activate an optional or built-in rider purchased with an index-linked annuity. 

For clients who want to grow their retirement savings but have a measure of protection from loss if there is a market downturn, a fixed indexed annuity (FIA) may be a good match. Many of these annuities have an optional or built-in rider, often for a fee, that can provide lifetime income in retirement. The income amount is typically guaranteed provided no additional withdrawals are taken after income is elected. 

4. Exercise a deferred annuity’s withdrawal provisions, which may include required minimum distributions (RMDs) and other systematic withdrawals.

Many deferred annuities offer a provision where a client can withdraw a portion of their funds each year — usually up to 10% of the total annuity contract value — without paying a withdrawal charge. However, both withdrawals and lifetime income from an annuity may be taxed as ordinary income.

Withdrawal charges and, if applicable, a market value adjustment (MVA) generally apply to withdrawals if more than this amount is taken during the annuity’s withdrawal charge period. And withdrawals made prior to age 59½ may also be subject to a 10% federal income tax.

Systematic withdrawals 

Creating a systematic withdrawal plan can allow the annuitant to choose the amount and frequency of withdrawals, whether on a monthly, quarterly, semi-yearly or annual basis.

RMDs

If a client has a qualified annuity, like those held in an IRA or other tax-advantaged plan, they may need to take required minimum distributions (RMDs) once they reach age 73 to avoid paying a penalty. Many annuities allow RMDs to be taken without incurring withdrawal charges or an MVA, regardless of the amount of the RMD.

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Helping today’s retirees

Unlike the retirement landscape of the past, today’s retirees may need to find ways to fill income gaps left by Social Security and dwindling pensions to help ensure they don’t outlive their savings.

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Any information regarding taxation contained herein is based on our understanding of current tax law, which is subject to change and differing interpretations. This information should not be relied on as tax, legal or financial advice and cannot be used by any taxpayer for the purposes of avoiding penalties under the Internal Revenue Code. We recommend that taxpayers consult with their tax or legal professionals for applicability to their personal circumstances.

Guarantees provided by annuities are subject to the financial strength and claims paying ability of the issuing insurance company. Guaranteed lifetime income is available through annuitization or an income rider. Income riders may be built into the contract or optional for a charge.