The new wave of Indexed Annuities will be annuities with income riders. An income rider pays out a specified amount for the rest of the annuity owner’s life, but does not have all the stipulations of outright annuitization.

When you annuitize an annuity you receive a specified income for a specified period of time. The problem with annuitization is that you lose liquidity and control over those funds. You cannot change the amount of money you are paid; you cannot speed up the time or lengthen the time in which the payouts are received. In other words, while still receiving income, your hands are tied.

Income riders provide a way to regain liquidity and control over your funds and provide you with the income you need in retirement.

The beauty of income riders is that you can stop and start the income stream as you see fit. You can walk away from the policy when the surrender period has expired. You can lower the amount of income you need if you do not need it.

If you skim the interest off of a CD for income this is the type of product you will want to look into. Most have a spousal continuance feature that allows the surviving spouse to continue to receive a lifetime of income.

For example; you are 75 years old. You have $100,000 in a bank CD. That CD has been paying a rate of 5% per year. You skim off the interest each year for spending money. After taxes (assuming a 25% tax bracket) you get to keep around $3,750.

If you where to put that same $100,000 into an Indexed Annuity with an income rider you will receive an income of 6.5% per year. After taxes you will get to keep $4,870. The remainder of your $100k will be growing at a tax deferred rate. The greatest part is that what you take out gets flushed back in through interest crediting. Chances are you will never run out of money and be able to provide yourself and your spouse with a lifetime of income. Count on it!