A fixed annuity can
be an attractive retirement savings vehicle if you’d like to receive a
specified income at regular intervals for the rest of your life or for a term
of years (based on the claims-paying ability of the insurer). You may
appreciate the relative low risk
and tax-deferred growth a fixed
annuity provides.
How much you
receive from an annuity generally depends on your age when you begin to receive
payments and the amount of money available (gender may also play a role).
Once you own an
annuity, you’ll need to select a payout option when you reach the annuity’s
starting date, which is usually retirement. Many annuities offer a number of
different payout choices.
A Review of the Basic
Payout Choices
Here’s a brief
overview of the basic options:
Life Only. This option provides income for life and
generally provides the largest benefit of all the options. You can receive
payments monthly, quarterly, semi-annually, or annually. Note that, after you
die, all payments stop.
Life with Term Certain. With this option, you receive income for
life. If you die before a stipulated time (the term certain), usually 5, 10,
15, or 20 years, the payments then continue to a beneficiary.
Joint and Survivor Life. Under this arrangement, two individuals
receive annuity payments for both their lives. When one dies, the other
continues to receive income or some portion of it, for the remainder of his or
her life.
Installment Refund Life. With this option, if you die before you have
received at least as much as your original premium payment(s), the balance is
paid out to a beneficiary in installments.
Unit Refund Life. This option is similar to the installment
refund life option except that the beneficiary receives the balance in a lump
sum.
Payments for a Specified Period. Payments are made for a pre-specified term,
generally ranging from one to 30 years, and then continue to a beneficiary if
you die before the term ends.
What Should You Do?
Fixed annuities may
provide some important benefits as a source of retirement income. If you are
considering purchasing a fixed annuity, understanding the different payout
options may help you get the most from your choice. Talk to your financial professional to learn more.
