When it's time to start receiving income from your annuity, you'll need to decide on a payout option that best suits your financial needs and goals.
Each option has its own advantages and disadvantages, so it's important to carefully consider your choices before making a decision.
In this article, we'll explore the various annuity payout options, including life annuity, joint and survivor annuity, life with period certain, and lump-sum payouts, to help you make an informed choice about your retirement income.
1. Life Annuity
A life annuity provides income payments for the rest of your life, ensuring that you won't outlive your retirement savings.
The payment amount depends on factors such as your age, gender, and the size of your annuity investment.
While this option offers the security of a guaranteed income stream, it doesn't provide any benefits to your beneficiaries after your death.
2. Joint and Survivor Annuity
A joint and survivor annuity pays income for the lifetime of both you and a designated beneficiary, typically your spouse.
Upon the death of the first annuitant, the surviving beneficiary continues to receive income payments for the rest of their life.
This option ensures that your spouse will have a source of income after your death, but the income payments may be lower than those of a life annuity because they cover two lives.
3. Life with Period Certain
A life with period certain annuity combines the features of a life annuity and a fixed-term annuity.
It provides income for your lifetime, but it also guarantees payments for a specified period, such as 10, 15, or 20 years.
If you pass away before the end of the specified period, your beneficiary will receive the remaining payments.
This option offers both lifetime income and a safety net for your beneficiaries, but the income payments may be lower than those of a life annuity.
4. Lump-Sum Payout
A lump-sum payout allows you to withdraw your entire annuity investment in one payment, giving you immediate access to your funds.
While this option offers flexibility and liquidity, it may not provide the same level of financial security as an income stream, and it may also result in a significant tax liability.
Conclusion
Choosing the right annuity payout option depends on your individual financial goals, needs, and circumstances.
Factors such as your life expectancy, income requirements, and the needs of your beneficiaries should all play a role in your decision.
By carefully considering your options and consulting with a financial professional, you can make the best choice for your retirement income.
Resources:
Investopedia - Annuity Payout Options: https://www.investopedia.com/terms/a/annuity-payout-phase.asp
The Balance - Annuity Payout Options Explained: https://www.thebalance.com/how-to-choose-the-right-annuity-payout-option-2388989
Forbes - How to Choose the Right Annuity Payout Option: https://www.forbes.com/sites/wadepfau/2019/02/05/how-to-choose-the-right-annuity-payout-option/?sh=6f8255237f1c
Kiplinger - Understanding Annuity Payout Options: https://www.kiplinger.com/article/retirement/t003-c000-s004-understanding-annuity-payout-options.html
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