Here’s what I’m sure you’ve all been anxious to get to. What options do you have in regards to selecting your annuity payout options?
First, hold your horses just a minute longer. We want to give you a quick rundown on the phases of your annuity.
The first is the accumulation phase. During this period you can add funds to your annuity contract. Typically, you do this by depositing cash, converting life insurance cash, or doing something called a 1035 exchange. We’ll give you a more detailed explanation of the Glossary Index. But, for the time being, just know that this is simply moving an existing annuity to another.
The second is the annuitization phase or the payout phase. That means when you’re the age of 59 ½ you can begin making withdrawals from your annuity without getting hit with a penalty.
Annuity Payout Options: You also have several options to do this
Life annuitization option.
Usually, this is your best option if you’re looking to take the highest payout. The reason? The monthly payment is calculated on the life of the annuitant. That means you’ll receive an income stream for life.
Joint-life annuitization option.
Another popular option is the joint-life annuitization. It’s designed for those who are married. As such, you can pass the income to your spouse if you pass away before they do.
However, the monthly payment is lower than the life option. Why? The calculation is based on the life expectancy of both you and your spouse.
Period certain annuitization.
Here the value of your annuity is paid out over a predetermined time frame. You choose this period — typically 10, 15, or 20 years.
If you go with a 15-year period, as an example, and die within the first 10 years, your beneficiary is guaranteed payments for the remaining five years.
Life with guaranteed terms.
Do you want to receive an income for the rest of your life? The life option achieves this. But, if you’re concerned about what would happen in the case of an untimely death, then this provides you with some peace of mind.
With the life-with-guaranteed-term option, you’ll not only secure an income stream for life, but you’ll also be able to obtain a guaranteed period of payments. In turn, your estate or beneficiaries will receive payments even if you pass prior to that guaranteed period.
With this option, you have the ability to select the size of your monthly payments — depending on how much you have in the account. You can even choose the number of payments you wish to receive.
Just be aware that the insurance company does not offer guarantees. Specifically, if you don’t outlive your income payments.
Experts suggest that you do not take one lump sum. That’s because you’ll be responsible for income taxes in the year you take this payout. Even worse, these taxes will be due on the entire investment-gain portion of your annuity.
How are your monthly payments computed? Factors like age and gender play an important role. For example, because women typically have a longer life expectancy than men, their monthly payments will not be as high.
Additionally, your payment options are also a factor. And, so is the insurance company that you work with. If they can make a higher return, then your payments will be higher. If you don’t mind doing the math, Due has formulas that you can use to figure out your present and future value of annuities with our simple annuity calculator.
But, your best bet is to work with a financial advisor to guide you through this.