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Annuities as an Asset Class for Fee-Based Advisors l 16 © Envestnet 2022 Menu of Income Annuity Features and Options Income annuities can be either immediate or deferred in terms of when their payments begin, though as noted these are all technically immediate annuities because the contract is annuitized. An immediate income annuity begins income payments within one year of the purchase date, while a deferred income annuity does not begin payments until at least one year after the purchase date. A deferred income annuity purchased at retirement with income beginning at age eighty or eighty-five is also referred to as longevity insurance. After the Treasury Department updated regulations in 2014 to facilitate the use of longevity insurance inside retirement plans, longevity insurance is now also known as a qualified longevity annuity contract (QLAC). In practice, deferred income annuities are used less as a form of longevity insurance and more for prepaying retirement and removing market risk in the pivotal preretirement years. In such a case, one might purchase a deferred income annuity at age fifty-five or sixty, for instance, for income to begin at sixty-five. Single life income annuities only cover one person's life. With such an annuity, income payments continue until the annuitant's death. A joint life annuity, on the other hand, continues payments for as long as at least one of two annuitants survives. Often joint annuities are set up for two spouses, but marriage is not a requirement for two annuitants to be included on a joint life contract. Since payments are expected to last longer when two lives are covered, the joint protection comes at the cost of a lower initial payout rate. A joint life and 100 percent survivor annuity provides the same payment as long as one annuitant is alive. This is the most popular option in practice. With a joint life and 67 percent survivor annuity, for instance, the payment would reduce by 33 percent upon the first annuitant's death, allowing for a higher initial payment. A life-only income annuity is the Platonic ideal, offering the highest payout and the most mortality credits. Payouts are highest because the purchaser is taking the most "hit by a bus risk"—the common fear of signing an annuity contract and then being hit by a bus and killed on the way out of the office. Life-only annuities are popular with academics because acceptance of this risk makes more funds available to the longer-surviving members of the risk pool, allowing one to buy protected lifetime income at the lowest possible cost. In practice, many annuity buyers will be uncomfortable with a life-only annuity. CANNEX, a firm providing annuity quotes, finds that only about 15 percent of the inquiries it receives are for life-only options. A joint life and 100 percent survivor annuity provides the same payment as long as one annuitant is alive. This is the most popular option in practice.

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