Understanding Your Annuity Options at Retirement

Bottom Line Up Front

• There are 5 common pension payout methods (also known as annuities) –  Single Life Annuity, Joint and Survivor Annuity, Certain and Life Annuity, Certain Annuity, and Lump Sum Payment. 
• It’s important to understand each of these options to make an informed decision when selecting a pension plan that aligns with your retirement needs. 
• Below, we emphasize the crucial differences between each annuity option, such as beneficiary benefits and duration of payments. 

As you approach retirement, navigating your annuity options can be overwhelming. You’re likely to encounter a package full of choices, each with its implications. Understanding these options is crucial in making an informed decision that aligns with your retirement goals. Here’s a simplified guide to the most common pension payout methods: 

1. Single Life Annuity

What it is: The quintessential pension plan, offers a monthly payment for the duration of your life. 

Key feature: Payments will cease upon your death; no benefits are extended to your heirs or spouse. Also, if you’re married, it will require the notarized consent of your spouse. 

2. Joint & Survivor Annuity (50%, 100%, etc.)

What it is: Similar to single life annuity, it is paid to you for the rest of your life. 

Key feature: Now this is where it differs, when you choose this option you select a “Survivor” (usually a spouse) who receives a percentage of the original payment (50%, 100%, etc.) if you were to pass away before them. The payments end after both you and your survivor pass away. 

3. Certain & Life Annuity (5-year, 10-year, etc.)

 What it is: A lifetime annuity with a twist.

 Key feature: Guarantees a minimum number of payments (5 years, 10 years, etc.). If you die before that period is over, payments will still be due to your family until the end of that period. After the guaranteed period, it will continue for the rest of your life with payments ceasing upon your death. Also, if you’re married, it will require the notarized consent of your spouse. 

4. Certain Annuities (5-year, 10-year, etc.)

What it is: A fixed-period annuity, meaning that it is paid to you for a set period, regardless of your lifespan. 

Key feature: Payments are made for a set period (5 years, 10 years, etc.). If you pass away before the end of this period, your family will still be eligible to receive further payments until the end of the certain period. After the period is over, payments will cease. Also, if you’re married, it will require the notarized consent of your spouse. Also, keep in mind that you will be responsible for investing these funds to ensure they last for your lifetime.

5. Lump Sum Payment

What it is: A one-off, large payment made at the time of your retirement. 

Key feature: After the lump sum is paid, no further payments are made. Also, if you’re married, it will require the notarized consent of your spouse. Also, keep in mind that you will be responsible for investing these funds to ensure they last for your lifetime.

6. Additional Annuity Options

There are more specialized options such as Joint & Survivor Annuity with Pop-Up and Social Security Level Dollar. If you’re interested in these less common choices, it’s advisable to consult your financial advisor for more detailed guidance. 

Other Considerations

Keep in mind that each person is different and has differing life goals & circumstances. If you’re married, your default form of payment will be a Joint & Survivor annuity. If you would like to select another form of payment, you will need your spouse’s consent and signature. If you’re in poor health, accelerated benefit options like a lump sum may make sense. You may have other pensions, IRA’s or Social Security benefits so it’s important to see how they all fit into your financial plan.

To Sum It Up 

Armed with this knowledge, you can now navigate your annuity (pension) options with greater confidence. Remember, each choice has its unique advantages and implications for your retirement planning. Consulting with a financial advisor can provide personalized insights tailored to your specific situation. 

If you’d like to know more, you can reach us here. We’d be happy to answer any questions you may have.