There are several key factors to consider when you weigh the various payout options. It makes sense to review them with your financial adviser before making up your mind.Who will get the money?
|Joint And Survivor||Single Life|
JOINT AND SURVIVORShould the payout be life only or joint and survivor? For many people, wanting to provide lifelong income for a spouse or other survivor is the driving force in choosing a joint and survivor payout. Each individual payment amount is less than with a single life annuity, but the total over two lifetimes can be more, sometimes much more.
SINGLE LIFEWhen isn't a joint and survivor policy the wiser decision? Among the factors to consider are how much income each of you has from other sources and how healthy you are. For example, if you own an annuity and your spouse has a good defined benefits plan, taking a single life annuity might make sense. It would provide more income than a joint and survivor payout, and your spouse is already guaranteed lifetime income. Similarly, if your spouse is ill, and unlikely to outlive you, a single life annuity might be the wiser choice.
|Period Certain||Fixed Term|
Should you choose a life annuity that guarantees a certain number of payments? One reason people give for choosing not to annuitize is that they're afraid if they die shortly after they begin receiving payments, they will forfeit a large portion of the amount they spent to purchase the annuity. To avoid that situation, some people choose a life annuity with a period certain payout guaranteeing that they or their beneficiaries will receive income for at least a minimum period, typically 5, 10, or 20 years. You can choose a period certain payout whether you take a single life or joint and survivor option. Although the guarantee reduces the amount you get somewhat, you may consider it a smart choice.
Should you take a payout that doesn't guarantee life income? If the reason you're annuitizing is to be able to count on income for as long as you live, you should choose the lifetime guarantee. But there are situations when getting a larger amount of money each month or insuring payments will last a specific amount of time is a smart decision.What's appealing is that these payout models may produce larger income payments in the short term. Also, when you select this option, you typically have the opportunity to commute, or cash in, your annuity for a lump sum rather than receive income payments in the future.
In addition, in these plans part of your income payment is always tax free on fixed terms or fixed amounts. With lifetime payouts, you may end up owing tax on the entire income amount of each payout if you live long enough to get your entire cost basis back. Of course, this is not really a negative since it means that you're getting back more than you put in.