Joint-life and last-survivor annuities are financial products designed to provide a steady stream of income to two individuals, typically spouses or partners, for the duration of their lives. These annuities offer different payout options based on the longevity of the annuitants, providing financial security and peace of mind during retirement. Understanding how joint-life and last-survivor annuities work is essential for individuals planning their retirement income strategies.
What are Joint-Life and Last-Survivor Annuities?
Joint-life and last-survivor annuities are types of annuities that provide income payments to two individuals, often spouses or partners, for the duration of their lives. These annuities continue to make payments as long as one of the annuitants is alive, ensuring financial security for both individuals, even if one outlives the other.
Key Features of Joint-Life and Last-Survivor Annuities
- Dual Payouts: Joint-life and last-survivor annuities offer income payments to two annuitants, ensuring financial support for both individuals during retirement.
- Lifetime Payments: These annuities provide guaranteed income for the duration of the annuitants’ lives, offering protection against longevity risk—the risk of outliving one’s savings.
- Continued Payments: Last-survivor annuities continue to make payments as long as one of the annuitants is alive, even after the death of the first annuitant. This feature provides financial support for the surviving spouse or partner.
Types of Joint-Life and Last-Survivor Annuities
- Joint-Life Annuities: Joint-life annuities make payments to two annuitants for the duration of their lives. Payments cease upon the death of the second annuitant, regardless of when that occurs.
- Last-Survivor Annuities: Last-survivor annuities continue to make payments as long as one of the annuitants is alive, even after the death of the first annuitant. Payments cease only upon the death of the last surviving annuitant.
Benefits of Joint-Life and Last-Survivor Annuities
- Income Security: These annuities provide a steady stream of income for the duration of the annuitants’ lives, ensuring financial security during retirement.
- Longevity Protection: Joint-life and last-survivor annuities protect against the risk of outliving one’s savings by providing lifetime income payments.
- Survivor Benefits: Last-survivor annuities offer continued financial support for the surviving spouse or partner after the death of the first annuitant, helping to maintain their standard of living.
Example of Joint-Life and Last-Survivor Annuities
Consider a married couple, John and Mary, both aged 65, who purchase a joint-life annuity with a payout of $1,000 per month. The annuity contract stipulates that payments will continue as long as either John or Mary is alive. If John passes away at age 75, Mary will continue to receive the $1,000 monthly payments for the rest of her life. However, if Mary outlives John and passes away at age 85, the annuity payments will cease.
Considerations for Joint-Life and Last-Survivor Annuities
- Payout Options: Individuals can choose between different payout options, including level payments, increasing payments, or payments with a period certain.
- Premium Amount: The premium for joint-life and last-survivor annuities depends on factors such as the age and life expectancy of the annuitants, payout options selected, and prevailing interest rates.
- Tax Implications: Annuity payments may be subject to taxation, depending on factors such as the type of annuity, the source of funds, and the annuitants’ tax status.
Conclusion
Joint-life and last-survivor annuities are valuable financial tools for individuals planning their retirement income strategies. These annuities offer guaranteed income for the duration of the annuitants’ lives, providing financial security and peace of mind during retirement. By understanding the features, benefits, and considerations of joint-life and last-survivor annuities, individuals can make informed decisions to support their retirement goals and ensure a comfortable standard of living in their later years.
For further reading, “Retirement Income Redesigned: Master Plans for Distribution” by Harold Evensky and Deena B. Katz offers comprehensive guidance on retirement income planning, including discussions on annuities and their role in retirement income strategies. This resource is valuable for individuals seeking to optimize their retirement planning and maximize their financial security during retirement.