Lifetime Income Annuity: Guaranteed Retirement Income

Guaranteed income for life is one of Roccy DeFrancesco's favorite products in financial services, and also one of the most polarizing. Some advisors love annuities with guaranteed income riders; others won't touch them. In this episode Roccy walks through how they work, runs the numbers on what they do for a retired couple, and explains why he thinks they make sense even for affluent clients who don't need the income. Who wants guaranteed income? Almost everyone, according to the surveys on Roccy's slides: more than 4 in 5 workers would be interested in a product that pays guaranteed monthly income for life from retirement savings (EBRI's 2026 Retirement Confidence Survey), 86% of Americans in a LIMRA study said guaranteed income provides peace of mind in retirement, and 92% of 401(k) participants want pension-like lifetime income (TIAA Institute). Income for life vs. guaranteed income for life: “income for life” is what most advisors offer: invest in dividend stocks and other assets and live off what they pay. Roccy's firm does this too. The problem is there's no guarantee. Guaranteed income for life comes from an annuity that contractually promises a payment every year, no matter how long you live. “Annuities aren't evil,” Roccy says. “They're just one tool.” Why income-for-life strategies fail: sequence of return risk. A big market drop right before or early in retirement can drain a portfolio you're withdrawing from. Roccy's slides list the S&P 500's maximum drawdowns: −19% in 2025, −25% in 2022, −34% in 2020, −46% in 2000–2002 and −59% in 2007–2008. And after a 30% loss you need a 43.33% gain just to get back to even. The example: a married couple, both 65, earning 4.5% net, with just enough money to last until 89. One −30% year, three years into retirement: they run out of money 8 years early. Same drop, then a +30% bounce the next year: still 4 years early. Put 50% of their money into a guaranteed income product (Roccy stresses 50% is only for illustration; the right share is case by case): at 89 they're projected to have $725,000 left, with money lasting past 95. With the income product and the −30% year: money lasts to 93. Add the bounce-back: to 97, with $416,000 at 89. How a guaranteed income rider works: these products track two values. Actual account value: your real cash, used for withdrawals, surrender and the death benefit. Roccy believes these annuities are designed to return roughly 4% to 6%. At 5% a year, $500,000 grows to $814,447 in 10 years. Benefit base: used only to calculate your lifetime income. Some products guarantee a compounded roll-up of around 8.5% (some 7%, one he's seen at 9.75%). At 8.5%, $500,000 becomes $1.13 million after 10 years, guaranteed from day one. It is not a walk-away value. Payment bands: the percentage of the benefit base you're paid each year. Many carriers pay roughly your age as a tenth of a percent, so 6.5% at 65; some pay 7.5% or more. The roll-up rate is the same whatever age you buy; the payment rate rises the older you are when you turn income on. Roccy contrasts that with old-school planning, which moved retirees into CDs, money markets and fixed annuities whose income depends on interest rates. Someone retiring in 2010 got close to nothing. With an income rider, you know your payment the day you fund it. Common questions: Death benefit? Yes: the actual account value, not the benefit base. Withdrawals? Yes. These aren't annuitization products, so the cash stays yours, but a withdrawal reduces your income payment. Most allow 10% a year free of surrender charges. Surrender charges? Typically 10 years, starting at 10% and dropping 1% a year. Don't buy one if you may need the whole sum within a few years. Cost? Typically 0.80% to 1.25% a year. Check that the fee comes off the actual account value; a handful of products charge it on the benefit base, which costs much more. When can income start? Immediately or any year up to about year 10 or 11; a few products roll up for 15 years. You don't have to choose when you buy. Roccy says some of these currently pay more than traditional immediate annuities. Married? A joint-life option pays until the second spouse dies. The roll-up is the same, but the payment band is usually about 1% lower. Roccy recommends it for most married couples. Why haven't you heard about these? In Roccy's opinion, some advisors are contractually barred from offering them (he names Northwestern Mutual as an example). Fee-only advisors can't sell commission-based products, which these generally are. And many advisors simply don't research them. He also rebuts the usual objections: “I can get you similar results in the market” (not with a guarantee), “why pay the insurance fee” (ironic, he says, from advisors charging 1% or more), and “they're illiquid” (partly true, which is why you only buy one for money meant to produce income). Roccy covers advisor conflicts in more depth in episodes 5 and 8. Should affluent clients use them? Roccy's answer: absolutely. Unless you have what he calls “stupid wealth,” you still hedge market risk in retirement, which usually means lower returns. Guaranteeing a large share of your income lets you invest the rest more aggressively. On his slide, over the 20 years shown, the S&P 500's compound annual growth rate was 11.11% against 8.09% for a 60/40 stock-bond portfolio, and $500,000 grew to $3.74 million versus $2.2 million. More for you, or for your heirs. Resources mentioned: Roccy's 27-page white paper, Guaranteed Income Products for the Affluent and the Non-Affluent, with more detail and examples. The video links to it; to request a copy, email [email protected]. Get a quote for your situation, whether you want income now or in 5, 7 or 10 years: email [email protected] or call 269-216-9978. Roccy's book Bad Advisors: How to Identify Them, How to Avoid Them. Disclosure: Roccy founded a registered investment advisory firm that, with its sister company, manages over $1 billion, and an insurance wholesale company that works with agents selling fixed products, including annuities. Guaranteed income rider products generally pay commissions, and his firms earn money when consumers buy through them. He also founded The Wealth Preservation Institute and OnPointe Software and wrote the book mentioned here. Statements about Northwestern Mutual, fee-only advisors and other advisors are Roccy's opinion; none has responded here. Roll-up rates, payment bands, fees and returns are general examples from his slides, vary by carrier and product, and aren't a quote or a guarantee for any product you might buy. Guarantees depend on the issuing insurer's claims-paying ability. Nothing here is legal, tax or investment advice. Questions, or a topic you want covered? Reach out.