How payout annuities work:
- You save for your retirement. You want the money you save to provide an income for as long as you live, or at least a certain period of time.
- You decide to purchase a payout annuity from an insurance company.
- The insurance company determines how much your income will be by taking a number of factors about you into consideration.
- The insurance company will send you money for the rest of your life (or the period of time you specify).
Factors that affect the income amount include:
- Your age - generally, the older you are, the larger the payments.
- Your sex – men and women have different life expectancies – the longer you are expected to live, the lower the payments.
- The amount of money you have to buy the annuity – the more money, the larger the payments.
- The interest rate at the time you buy – higher interest means higher payments.
Types of payout annuities:
- Life Annuity - provides income for as long as you live, and generally guarantees a minimum number of years of payments, even if you die before they’ve all been received. If you choose to have a guaranteed period, the payments continue to your beneficiary.
- Joint Life Annuity - provides income payments for as long as you and your spouse live.
- Term Certain Annuity - gives a specified number of income payments. If you die before all the payments have been made, a death benefit is paid to your beneficiary. This option is particularly useful in situations where income is required for a specific length of time. For example, a five-year term may be selected to cover five years remaining on a mortgage.
Some additional considerations - There are many variables and many options to choose from and choices to make.
- Do you want your payments to increase each year?
- Do you want a guaranteed period, where even if you die next week your beneficiary will still receive annuity payments until the end of the period?
- When do you want to start receiving payments? Immediately or at a future date?