Annuity Basics

Annuity Payment Options

Annuities serve as a valuable tool to generate a fixed income in retirement, wherein the money grows tax-deferred until the time of withdrawals. However, a detailed understanding of various types of payment options is necessary while making the selection to best meet your needs. Different annuity payment options include:

Life Annuities 

Life annuities come with no death benefits, wherein the payment terminates at the death of the annuitant. As there are no added alternatives in the contract, this annuity payout option typically provides the largest periodic payments and the annuitant receives periodic payments (usually monthly) over his or her lifetime. However, no death benefit is payable to any beneficiary of the annuitant. Lifetime annuities provide fixed payments or variable payments. In case of fixed payments, the annuitant receives a fixed amount for each payment, potentially with cost of living adjustments; however, in case of variable payments, payouts will fluctuate as payments are based on the value of the investments held in the annuity’s portfolio.

Life Annuities with Guaranteed Period Benefit

It is a blend of term certain annuity and life annuity which works on the period certain phase. It provides the annuitants with guaranteed income for life, just like the life annuity option as well as allows them to select a definite time period for which the annuity will pay the beneficiary after the death of the annuitant before the guaranteed period ends. For example, if the period certain phase is of 15 years and the annuitant lives for just 7 years after collecting, remaining 8 year benefits will be paid to the beneficiary. However, if the annuitant lives for 20 years after annuitization, he/she will receive 20 years of benefits and the beneficiary will receive nothing.

Joint and Survivor Annuities

Referred to as one of the most popular options, joint and survivor annuities provide death benefits for the spouse or named survivor of the annuitant. Though choosing this option means accepting a rather lower amount of income from the start, but it promises lifetime payments to named survivor, if he/she survives you. A variation of joint and survivor annuity options are available including payment of 50%/75%/100% of the benefits for the lifetime or 25% of the benefits on the death of the annuitant or named survivor. Annuitants will receive slightly lower income on choosing 100% of the benefits as compared to the payment of 50% or 75% of the benefits.

Guaranteed Period Annuities

These term certain payment benefits assure to provide a definite amount for a period of time, ranging between 5 to 30 years, meaning if the annuitant dies before the expiry of the definite period, the beneficiary will receive the remaining amount until the period ends. As the annuitant does not receive the payments for the lifetime, payments are higher as compared to other annuity options. Investors opt for guaranteed period annuities as a way of protecting the capital invested in an annuity.

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