There are multiple types of annuities that produce income. The three main types are a Single Premium Immediate Annuity (SPIA), Fixed indexed annuity with income rider and a deferred income annuity (sometimes called a longevity annuity). They key is to know the strength of each product and the best time/situation to use it. SPIA- A SPIA is an immediate annuity. You give the insurance company a lump sum of money and they guarantee a future income stream for life. Although it is called a Single Premium Immediate Annuity, you can actually wait up to 13 months before starting income with some products. With a SPIA, you are giving up control of the lump sum of money. (There are variations that guarantee to pay out at least what you put in even in the event of early death however) The SPIA will almost always have a higher instant payout than an indexed annuity with an income rider. As a result, it is usually to your best interest to use a SPIA when looking for immediate income.
Fixed Indexed Annuity (FIA) with income rider- With the FIA, you are able to maintain control of the lump sum investment. The product allows you to add an income rider which will produce guaranteed income at a future date. The future income is also guaranteed so you can see exactly how much it will pay in the future. FIA annuities are a good income option if someone is looking for income in the next 3 to 15 years. If income is needed earlier than that, use a SPIA. If income is needed further out, use a Deferred Annuity.
Deferred Annuity- This is a good option to use when income is needed in the distant future (more than 15 years from the time of the investment). It is also very good for people in their 20’s, 30’s and 40’s which is too young for most other annuity types. The disadvantage is that you give up on control of the invested amount of money in return for the promise of a future income stream.