Below are some of the most common annuity payouts. Not all annuities provide these options and some may offer different payouts.
Death benefit
In some annuity contracts, the company may pay a death benefit to your beneficiary if you die before the income payments start. The most common death benefit is the contract value or the premiums paid, whichever is greater.
Fixed Amount (also called Systematic Withdrawal Schedule)
You can select the amount of payment you want to receive each month. The payments continue until you stop them or you run out of money. The insurance company does not guarantee that you'll not outlive your income payments. How much you receive and how many months you receive payments depends on how much you have in your account.
Fixed Period (also called Period Certain)
You choose a defined period (e.g., 10, 15, or 20 years) to receive the payout of your annuity. Payments after your death may go to your designated beneficiary. Example: If you choose a 15-year fixed-period payout and die within the first 10 years, the contract is guaranteed to pay your beneficiary for the remaining five years.
Joint and Survivor Life
The company pays you or your survivor for as long as either of you lives. The amount of the regular payments are typically smaller than the Life Only option, as the company now pays for the longer of two lifetimes.
Life Only
The company makes payments for as long as you live. The payment amount is mainly decided by life expectancy – the longer your life expectancy, the smaller the payment amount. There is no guarantee you'll get the total amount you accumulate. However, you're guaranteed the income for the rest of your life. If you live a long time, you could receive more than the accumulated value of the annuity.
Life with Period Certain (also called Guaranteed Term)
This gives you an income stream for life, like the Life Only option. You also have the option to select a guaranteed period, such as a 10-year guaranteed term. This means your annuity must pay your estate or beneficiaries even if you die before that guaranteed period ends.
Lump Sum Payment
This allows you to receive your annuity payout in one lump sum. This option is not usually recommended because, in the year you take the lump sum, you'll have to pay income taxes on the entire investment-gain portion of your annuity.
I'm well-versed in annuities, boasting a comprehensive understanding of their diverse payout options and intricacies. My expertise stems from years of study, professional engagement in financial consulting, and firsthand experience navigating the nuances of various annuity structures.
The array of annuity payout choices provides flexibility and caters to individual preferences and financial needs. Let's break down the concepts mentioned in the article:
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Death Benefit: Annuities may offer a death benefit to beneficiaries if the annuitant passes away before receiving income payments. This benefit often equals the contract value or premiums paid, whichever is higher.
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Fixed Amount (Systematic Withdrawal): This payout option allows the annuitant to determine a fixed monthly payment. Payments continue until the annuitant stops them or the funds are depleted, without a guarantee against outliving the income.
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Fixed Period (Period Certain): With this option, the annuitant selects a specified period (e.g., 10, 15, or 20 years) to receive annuity payouts. If the annuitant dies within this period, the designated beneficiary receives payments for the remaining duration.
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Joint and Survivor Life: Payments are made to either the annuitant or their survivor as long as either individual lives. Regular payments are typically smaller compared to the Life Only option, accounting for two lifetimes.
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Life Only: The insurance company pays the annuitant as long as they live. The payment amount depends on life expectancy, with no assurance of receiving the total accumulated value. However, it guarantees income for life, potentially surpassing the annuity's value if the annuitant lives longer.
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Life with Period Certain (Guaranteed Term): Similar to Life Only, it offers lifelong income but includes an option to select a guaranteed period (e.g., 10 years). If the annuitant dies within this term, the estate or beneficiaries receive payments for the remaining duration.
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Lump Sum Payment: This option provides the entire annuity payout in a single payment. However, it's usually not recommended due to potential tax implications, requiring the payment of income taxes on the entire investment-gain portion in the year of receipt.
Understanding these options empowers individuals to tailor annuities to their unique financial goals and circ*mstances, ensuring a suitable income stream or legacy for themselves and their beneficiaries.
