Annuity Income Payout Options
Many people purchase annuities because of their ability to pay out a guaranteed income stream, either right away, or at some time in the future. For some, the income received from an annuity serves as a good supplement to other income sources, such as pension and/or Social Security benefits. For others, though, the payout from an annuity will serve as their primary source of income in retirement.
Options for Taking Income from an Annuity
In most cases, an annuity will offer several options for taking income or withdrawals. These may include the following:
- Life Only
The Life Only option provides recurrent payments for the remainder of an annuitant's lifetime, regardless of how long it may be. This can help to alleviate concerns about running out of income in the future. In many cases, then, the Life Only annuity payout option can provide the largest number of recurring payments to an individual or couple.
- Period Certain
The Period Certain option allows for regular, recurring payments for a set amount of time, regardless of how long the annuitant lives. For example, a ten year payout period may be chosen, whereby the annuity pays out income for ten years. Once the set time period has elapsed, no more payments will be made. If the annuitant passes away before the set period is up, then the remaining annuity income payments will go to a named beneficiary.
- Life with Period Certain
The Life with Period Certain payout essentially combines the Life Only and the Period Certain options. With this payout, the annuity provides payments for the remainder of the annuitant's lifetime. However, if the annuitant dies before a set time period - such as ten years - has elapsed, the remaining payments will go to a designated beneficiary for the rest of the period certain.
- Joint and Survivor
With the joint and survivor annuity payout option, two individuals will receive income from the annuity. This alternative is often chosen by spouses or partners who want to ensure that both individuals will have income for a set period of time, or even for the remainder of both of their lifetimes. In some instances, the dollar amount of the payment may be reduced for the survivor upon the death of the first individual.
- Lump Sum Withdrawal
There may be certain situations where an individual would prefer to simply withdraw all of his or her funds from the annuity, rather than receiving an ongoing income stream. In this case, the money may be needed for the payoff of debt, payment of large medical expenses, or any other want or need.
It is important to note, though, that if this option is chosen, it could cause a substantial tax obligation in the year that the withdrawal is made. In addition, if such a withdrawal is made before the end of the annuity's surrender period, the individual could also incur an early withdrawal penalty.
Which Annuity Payout Option is Right for You?
Because all situations are different, there is not a one-size-fits-all annuity payout option that will be best for everyone. Therefore, prior to moving forward, it is recommended that you discuss your specific needs and goals with an expert in the insurance and annuity field. Doing so will help you to narrow down which alternative is right for you.