Fixed Annuities Cincinnati
Payout Options on Annuities
The second stage of a annuity, after the accumulation stage, is the payout or annuitization stage. Once a person reaches 59.5 years of age, he or she can begin withdrawing funds from an annuity. Funds can be withdrawn in a lump sum, on a fixed period basis, or on an annuitized basis. There are many structures for withdrawal of funds from an annuity.
Here are several possibilities:
Life Annuity Option
In this option an individual receives an annual benefit based on his or her age. This option generally provides the highest income option for an individual. Payments continue throughout the individual’s lifetime. This option protects a person from outliving his or her retirement funds because, as long as the individual is living, the funds keep coming. The downside of this option is that annuity payments will cease upon the death of the individual beneficiary. If an individual is married and both parties depend on income from the annuity, a life annuity can be a very risky option. This is because when the individual upon whose life the annuity is based dies, there are no additional funds made available to the surviving party.
Joint and Survivor Annuity Option
Also called a Joint Life Option, this annuity option structures payments at a lower level than a Life Annuity option, but it allows for payments to continue to a spouse upon the death of the primary annuitant. Payout benefits are lower than a Life Annuity because they take into account the life expectancy of both individuals involved.
Period Certain Annuity Option
With this option the annuity will pay out all of its value over a specified period of time. For example, if an individual selects a “ten year period certain” annuity, all benefits will be paid out over a ten year period. Even if the annuity recipient dies within the ten year time frame, the remaining benefits can be designated to a surviving beneficiary (or to the individual’s estate). The downside of a period certain annuity is in the risk of living too long. If a retiree lives beyond the ten year (or other specified) time frame, funds will be depleted.
Life with Guaranteed Period Annuity Option
This option gives an individual the ability to select a life option, so that an individual can be assured of income for the rest of his or her lifetime, but this option also includes a guaranteed payout provision, so that if the annuitant dies before the guarantee period has expired (say 10 years) , a guaranteed amount will still be paid to a beneficiary. Generally, this option will provide a lower benefit amount than would a standard Life Annuity.
Systematic Withdrawal Annuity Option
A systematic withdrawal annuity option is similar in some ways to a Period Certain Option. In this option a person can customize the number of payments received and when over a pre-set period of time.
Lump Sum Annuity Option
In a lump sum annuity option, an individual receives a “lump sum” check that cashes out the value of the annuity all at one time. If substantial funds are involved, this can create a higher tax liability as all of the income is received in one year. One benefit of longer term payout options is that they trickle out the annuity’s value over several years, thereby potentially lowering the annuity recipient’s tax liability.