Many people carry the false belief that the only way to have a true lifetime pension is to work for the government — police department, fire department, public utility, school system, state agency, or some other public-sector employer. They assume that if they work in the private sector, own a business, or are self-employed, their only retirement choices are stocks, mutual funds, 401(k)s, and hoping the market cooperates.

Nothing could be further from the truth. Private citizens, business owners, and self-employed professionals can create their own version of a pension — guaranteed income for life — by using annuities.

An annuity is a contract with a life insurance company designed to provide regular payments, often for as long as the annuitant lives. The IRS describes annuities as contracts that require regular payments for more than one full year to the person entitled to receive them. In other words, annuities are built for guaranteed income. They are not just investments; they are income contracts.

One little-known fact is that “IRA” does not only stand for individual retirement account. It can also refer to an individual retirement annuity. Most people think of IRAs as brokerage accounts holding stocks, bonds, or mutual funds. But an IRA may also be structured through a life insurance company as an annuity contract. That means the same basic retirement planning framework many people already know can also be used to create guaranteed lifetime income.

This is especially powerful for people who do not have an employer pension. A business owner, self-employed professional, or private-sector worker can reposition retirement dollars into an annuity and create what I often call a “personal pension.” The contract can be structured to pay income for one life, or for two lives if married. With a joint-and-survivor design, the income can continue to a spouse after the first spouse dies. And depending on the contract and options selected, any remaining account value may be paid to beneficiaries.

Annuities are not a modern invention. The concept dates back more than 2,000 years to ancient Rome. The Latin word “annua” referred to annual payments. Roman soldiers could receive income arrangements for life in exchange for their service, or a citizen a guaranteed income for life in exchange for a lump-sum payment. Today’s annuities are more sophisticated, but the basic idea remains the same: exchange a sum of money for predictable income and peace of mind.

After more than 31 years in this business, I have found that retirees often fall into two camps: the “worriers and hoarders” and the “relaxers and spenders.” Those without guaranteed income often watch the market, interest rates, inflation, politics, housing prices, and the news with constant concern. They know running out of money is a real possibility, so they tighten up. They delay vacations, postpone purchases, and hesitate to enjoy what they worked so hard to build.

Those with pensions or annuities often behave very differently. They know a check is coming this month, next month, and every month for life. They are not trying to outguess the market or time the economy. Their income is backed by the contractual guarantees and claims-paying ability of a financially strong life insurance company. That confidence can turn retirement dollars into both paychecks and “play checks.”

Annuities can also be valuable in family protection planning. A life insurance death benefit can provide tax-free proceeds to a surviving spouse, and that spouse may use those proceeds to purchase an annuity that creates guaranteed lifetime income. In that sense, an annuity can become a “love letter for life” — a monthly reminder that the deceased spouse had planned accordingly by providing lasting financial security.

For those nearing retirement but not ready to begin income immediately, some annuities offer an accumulation period. Money can grow tax-deferred until income begins. Certain contracts include income riders with very competitive guaranteed roll-up rates used to calculate future income. It is important to understand that these roll-up rates are typically not liquid cash values; they are accounting values used to determine the future guaranteed income amount.

Some annuities also include optional features that can increase or even double income if the owner or spouse cannot perform certain activities of daily living, such as bathing, dressing, eating, transferring, toileting, or continence. These riders may help address long-term care concerns without purchasing a traditional long-term care policy, although details vary by company and contract.

Not every annuity is used for income. Some are designed for safe accumulation. Fixed annuities may offer a guaranteed interest rate. Fixed indexed annuities may credit interest based partly on the performance of an index such as the S&P 500, while also providing a floor of zero so market losses do not reduce the protected value. Gains, when credited, may be locked in according to the contract terms.

Annuities can be funded with qualified money, such as traditional IRAs, Roth IRAs, or 401(k) rollovers, and with nonqualified money, such as savings, proceeds from the sale of investments or real estate, legal settlements, or life insurance proceeds. Growth is generally tax-deferred until withdrawals begin, unless the annuity is held inside a Roth arrangement that qualifies for tax-free distributions. Withdrawals before age 59 1/2 may be subject to ordinary income tax and a 10% IRS early withdrawal penalty, although immediate lifetime income arrangements may have exceptions to this and should be reviewed carefully with a qualified professional.

The bottom line is simple: guaranteed lifetime income is not reserved for government workers. Annuities allow individuals, couples, business owners, and self-employed people to build their own personal pension. For many retirees, the difference between worrying and relaxing is not how much money they have — it is whether they have income they cannot outlive.

Todd Radwick, principal of Radwick Financial Group LLC, of Winthrop, Washington, is an insurance and financial adviser. He can be reached at 509.679.4814.