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 SURVIVOR
The decision involves trade-offs, as so many things do. If the surviving partner gets 100% of the income, the amount you get while you are both alive will be less. But the goal in choosing that alternative is that the survivor continues to receive the same amount of income that was being paid prior to death.
On the other hand, a variable annuity paying the survivor 50% may provide sufficient income, since the living expenses of one person could be less than for two. Additionally, the variable annuity paying the survivor 50% can potentially provide enough growth to make up the difference over time if the separate account funds you've chosen produce strong returns. Of course, there is also the possibility that the survivor's payments will decrease if the separate account funds you've chosen don't produce strong returns because of an extended market downturn, for example.
|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.
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.
There are circumstances when knowing exactly what you can count on each month may seem more appealing than the potential for growth. And there's a way to arrange that as well.
You can receive fixed income from your variable annuity by tapping either part or all of the accumulated value of your contract. The way it works is that the assets in your separate account funds are liquidated and deposited into the annuity provider's general account. The company then takes the responsibility for making regular income payments.
With some contracts, you may also be able to choose a fixed payout that increases in increments of 1%, 2%, or 3%, reflecting increases in the cost of living.