What is a joint & survivor annuity & how does it work?
A joint and survivor annuity is an insurance contract that provides a guaranteed stream of income to two people. When one of the two people covered by the contract, also known as annuitants, dies, the other will continue receiving income payments. While payments made to the survivor may, in some cases, be lower than the payments received when both annuitants were alive, they are guaranteed until the second annuitant passes away.
A joint and survivor annuity can provide a guaranteed stream of income to couples who may be worried about outliving their retirement savings. While this type of contract is usually popular among couples nearing retirement, both annuitants don’t have to be married to be eligible for a joint and survivor annuity.
Can you withdraw money from your annuity?
Joint and survivor annuities are typically immediate annuities — meaning your payments start right away, or within a year. [1] This type of annuity isn’t typically used for investment purposes, like many deferred annuities are. Instead, the primary purpose is to guarantee an income stream for you and your selected partner.
Do annuities affect financial aid and other benefits?
This type of contract usually has one of the following payout structures.
Under 100% joint and survivor plans, the survivor receives 100% of the installment amount as the original annuitant received.
Under a 75% joint and survivor plan, the survivor receives 75% of the original payment amount.
Under a 50% joint and survivor plan, the survivor receives 50% of the original payment amount.
Learn more about other types of annuities
What rules & restrictions do joint & survivor annuities have?
You can buy a joint & survivor annuity with either qualified pre-tax and non-qualified after-tax dollars. But if you have a qualified annuity, certain rules apply.
If you have an annuity within a qualified retirement plan that’s sponsored by your employer and you’re married, your contract becomes a joint and survivor annuity by default when you retire.
Can annuities be used as a collateral for a loan?
If you — the employee and the first of the two annuitants — die, your employer must pay at least 50% of the amount paid during your life to your spouse, who’s the second annuitant on the contract. This rule applies unless you named a different survivor or beneficiary. [2]
What is the impact of interest rate changes on your annuity?
Oftentimes, the two annuitants are spouses, but they don’t have to be. If the two annuitants aren’t married, there are additional guidelines set in place by the IRS. [3]
For example, if the annuitants are more than 10 years apart in age, the survivor isn’t eligible for the full amount payable to the first annuitant.
The survivor can either take distributions based on their own life expectancy, or follow the five-year rule, which means that the sum of the annuity must be distributed within five years.
If you want to set up a joint and survivor annuity but you’re not sure which guidelines apply to you, you can consult a professional.
Are annuities a good investment?
What are the main pros & cons of a joint & survivor annuity?
Like with other kinds of annuities, a joint and survivor annuity eliminates the risk of outliving your savings. Plus, it can help you support a spouse or other family member. However, it might not be the best fit for you if you have other priorities, like diversifying your investments, or if you only need an income stream for a single annuitant.
Can you lose money in an annuity?
Pros
You’ll have a guaranteed income stream for two people.
If you’re married, you can have peace of mind that your spouse will be supported even after you’re gone.
You can structure income payments for life, so you and your partner don’t have to worry about outliving your savings.
Cons
When you elect a joint and survivor annuity, you’ll generally receive lower installments than you would if the annuity only covered one person.
Joint and survivor annuities aren’t primarily used for investment purposes, so if you’re younger, you could earn higher returns using other investment vehicles.
If you list a non-spouse survivor who’s much younger than you, they’d receive less money in installments than a spouse would.
Learn more about how annuities work
Who can take advantage of a joint & survivor annuity?
Joint and survivor annuities typically benefit older married couples. However, “there are a few situations when the [annuitants] aren’t necessarily spouses,” says Tony Boyden, learning and development partner at Zinnia. “This could be a parent who is taking care of a child, siblings who take care of a parent, or even business partners who are using [the annuity] as a source of income to fund their business.”
If you’re not sure if a joint and survivor annuity is right for your situation, speaking with a financial advisor or annuities professional can help you further understand your options.
How does an annuity fit into your overall retirement plan?
