Annuities are quite basic in theory and can be an important part of a balanced financial portfolio. Surviving spouses have various options when it comes to receiving the payout of an annuity.
An annuity is simply a contract with an insurance company created to meet long-range retirement or savings goals. You pay in a certain amount, either by regular contributions or a by a lump sum. The insurance company then pays out the money, over a specific period of time, returning a rate of return based on a fixed rate or tied to an outside financial factor, such as a mutual fund or stock index.
The payout of an annuity, unless set-up otherwise, will go only to the original buyer, called the annuitant. Once the annuitant dies, the surviving spouse may not receive further payments. Most annuities have plans or options to allow you to include your surviving spouse in the benefit:
50% joint and survivor benefit
Using this option, the surviving spouse will continue to receive payments, but they will be 50% of the original payment amount.
100% joint and survivor benefit
In this option, the surviving spouse will continue to get the same benefit.
Only primary annuitant 50% joint and survivor payout
This provides a payment option that will remain the same if one person dies. But if the spouse that purchased the annuity dies first, the surviving spouse will receive 50% of the original payment amount.
The are some other plan-specific options of joint and survivor annuity payout options and you should check with your plan provider. Always compare costs; most options that increase the benefit to your spouse carry charges or somehow impact your rate of return. And the more benefits you add to provide for a surviving spouse, the more your payments will be reduced while you are alive and receiving them.
The money contributed to an indexed annuity is usually tax-deferred, the money is taxed when it is withdrawn, usually at retirement when you are at a lower tax rate. There are three basic types of annuities. A fixed annuity pays out at a fixed rate, for a fixed period of time. Variable annuities are based on a specific financial investment, usually stock mutual funds, chosen by the investor. The rate of return is based on the rate of return of the mutual fund. The third type of annuity, an indexed annuity, provides a good balance between the security of a fixed annuity and the variable return of a variable annuity. The rate of return of an indexed annuity is tied to the performance of a stock index.