Lifetime Annuity: Preparation for a Lifetime

By Compuquotes Team on January 7th, 2009


The current average lifespan in the United States and in other industrialized countries is 77 years old. There are still many, however, who live vigorous, healthy lives in their 80's and 90's and even 100's. This means that if you're like most people, you're going to live for quite a number of years after your retirement at age 65. This highlights the need to prepare well for the years you ought to live comfortably after you've been in the labor force for so long. Annuities are common options for those who want a steady flow of income when they retire. Those who think they're going to live for many years after their retirement opt for lifetime annuity.

Annuity is basically an agreement to pay a person or an organization a series of payments for a number of years. In the context of retirement years' preparation, annuity is a regular income that you receive after you've deposited a certain amount. Many purchase annuities from insurance companies, although charities and trusts can also provide annuities. Most often, the amount of annuity payment depends on the premium paid, the interest rate and the age of the person. An older person will likely get a higher income for the same premium.

Some annuities pay only for a specified number of years - fixed period annuities. In this case, the annuity payment does not depend on the age of the person but rather on the amount paid into the annuity and the length of the pay-out period. If you die before the end of the fixed period, your beneficiary will continue to receive the same amount for the remainder of the period. The payments stop when the period ends.

Most annuities, however, pay for the lifetime of an individual. Such an annuity is called lifetime annuity. There are many variations to a lifetime annuity. The annuity may pay only for a single individual. When you die, the annuity payments stop. A joint life annuity, on the other hand, pays the same amount to a second annuitant (usually your spouse) for the duration of his life in the event that you die first. There are also lifetime annuities with a guarantee period of 5, 10, 15 or 20 years. If you die before the end of the guarantee period, your beneficiary will continue to receive the annuity until the period expires. Even joint life annuities can have a guarantee period. In the event that you and your spouse (presumed to be the second annuitant) die before the guarantee period ends, another named beneficiary will continue receiving the annuity amount until the end of the period.

A joint lifetime annuity can also have several options. There is the 100% -Benefit to Named Survivor, which indicates that the survivor get the same amount as the annuitant until his own death. The 75%- Benefit to Named Survivor provides 75% of the original amount to the second annuitant after the first annuitant's death. The 50%- Benefit to Named Survivor cuts the annuity into half when the first annuitant dies. Usually, when you outlive your spouse (presuming that you are the first annuitant and your spouse the second annuitant), you continue receiving the full amount of the annuity until your own death.

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