RETIREMENT INCOME

One of the cleanest retirement‑income tools is a Multi‑Year Guaranteed Annuity (MYGA). It’s basically a CD‑like contract from an insurance company: your principal is protected, and your interest rate is guaranteed for a set number of years.

Example: living off the interest, not the principal

Imagine:

• You invest 100,000 dollars in a MYGA
• The guaranteed rate is 5 percent per year
• You decide to only spend the interest, not the principal

In year one:

• Interest earned: 5,000 dollars (5 percent of 100,000)
• You take out 4,000 dollars for income (4 percent of your original 100,000)
• 1,000 dollars of interest stays in the contract as a small cushion

Now layer in a cost‑of‑living increase. Say you give yourself a 3 percent raise each year on the income you take out:

• Year 1: 4,000 dollars
• Year 2: 4,120 dollars
• Year 3: 4,244 dollars
• Year 4: 4,371 dollars
• Year 5: 4,502 dollars

The MYGA is still earning 5,000 dollars of interest each year on your 100,000 dollars. Your withdrawals are slowly increasing with inflation, but they are still living inside the interest, not touching the principal.

What this means for the investor:

• Your 100,000 dollars principal stays intact inside the contract
• You get a predictable income stream that steps up each year
• You’re taking a pay raise, but you’re not eating the seed corn

This is one simple way to build a “personal pension” feel while still keeping your original principal intact for later use or for your heirs.

(Actual rates, terms, and tax treatment will vary; this is a simplified illustration for education, not a recommendation.)

A Single Premium Immediate Annuity (SPIA) turns a lump sum into a guaranteed income stream that starts now or very soon. It behaves like a personal pension.

When you buy a SPIA, you’re essentially saying: “Take this chunk of money and pay me a guaranteed check every month for life (or for a set period).”

What happens to the principal?

With a SPIA, your principal is not sitting in an account you can later withdraw from—it has been converted into a series of guaranteed payments. You’ve traded the asset for an income promise.

Because of that, we almost always use a cash‑refund or similar refund structure:

• You receive guaranteed income payments for life (or for the chosen period)
• If you pass away before you’ve received payments equal to what you put in, your heirs receive the difference as a refund

Example:

• You put in 100,000 dollars
• Over your lifetime, you receive 70,000 dollars in income payments and then pass away
• Under a cash‑refund structure, your heirs receive 30,000 dollars (the difference between your deposit and what you were paid)

So, with a SPIA:

• Your original principal is no longer an account balance you can access
• Your heirs are still protected up to the amount of your original deposit
• You have turned a lump sum into a steady paycheck you cannot outlive

The trade‑off is simple: less liquidity and no “account value,” in exchange for a higher, guaranteed income that continues regardless of how long you live.

A Deferred Income Annuity (DIA) is designed to turn on income later in life—often starting in your 70s or 80s. Think of it as income insurance for old age.

Here’s how it’s typically used:

• You decide today that you want extra income starting at, say, age 75 or 80
• You put in money now (or over time) into a DIA
• The contract grows in the background, and then at your chosen age it turns on a guaranteed monthly paycheck

This can serve two key roles:

1.) Late‑life income protection

• You know that no matter what happens with markets or other accounts, a fresh stream of guaranteed income will arrive in your later years.
• That can protect you from the risk of living much longer than expected.

2.) Supplement for long‑term care costs

• You can coordinate the start of DIA income around the ages when long‑term care needs are most likely.
• The DIA income can help pay for in‑home care, assisted living, or other support, even if your other assets are being used for day‑to‑day expenses.

In short: a DIA is often less about “income now” and more about protecting your future self from the double‑whammy of advanced age and higher care costs.