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What Is a Joint and Survivor Annuity?
Let me explain what a joint and survivor annuity is—it's an insurance product mainly for retired couples who need a guaranteed monthly income that keeps going as long as either of you lives.
You know annuities in general are investments that give you a regular income stream in retirement. Compare that to a single-life annuity, which stops payments when the annuitant dies.
If you're a couple looking into this, you have options to think about. A higher starting benefit means the survivor's monthly payout drops, while a lower one could stay the same for the survivor.
Key Takeaways
- A joint and survivor annuity is an insurance product for couples; it keeps making regular payments as long as one spouse is alive.
- It provides income if one or both of you live longer than expected.
- This isn't ideal for younger couples—other investments offer better growth potential and lower fees.
Understanding Joint and Survivor Annuities
If you're considering a joint and survivor annuity, first figure out exactly what the payments will be. That depends on factors like how much you're investing, both of your life expectancies, and if it's a fixed or variable annuity based on investment returns.
There are other choices that impact the amounts. Typically, this annuity might cut the survivor's payment by 30% to 50%, but you can opt for a lower initial payment that continues unchanged for the survivor.
You also need to check the fees and commissions closely. Annuity fees average 2.3% of the value and can be higher, especially in more complex products.
When an Employer Sponsors the Annuity
If your employer sponsors the annuity, they choose the payment options, which might include single-life or joint and survivor.
But in employer-sponsored qualified plans, the joint and survivor annuity is the default for married couples at retirement. You can only switch to a single-life annuity with written, notarized approval from your spouse—or sometimes a former spouse, depending on divorce terms.
Remember, both spouses' life expectancies are key in choosing between joint and survivor or single-life annuities.
What Are the Advantages of a Joint and Survivor Annuity?
This annuity protects you from outliving your retirement savings. If you retire at 65 and plan for 80, but live to 90 or 100, you need that backup. Its biggest plus is safeguarding the surviving spouse.
Historically, annuities came through employers, and with men often having shorter life expectancies than women, it helped widows who outlived their husbands by years.
What Are the Disadvantages of a Joint and Survivor Annuity?
Like all annuities, this one won't give a good return for younger couples—the benefits are low and fees high compared to options like ETFs.
Immediate annuities fit better after 65, when you're retired or close to it. Also, with changing marriage trends, same-sex couples of similar ages might not benefit as much since their life expectancies are alike.
What Is an Installment Refund for an Annuity?
There can be provisions to pay a third party if both of you die before the payments exceed the principal. The money goes to your estate or a named beneficiary.
With an installment refund, the insurer pays monthly to the estate or beneficiary until the original annuity value is reached. A cash refund means the remaining principal is paid in a lump sum.
The Bottom Line
A joint and survivor annuity supports not just you but your surviving spouse after you pass. It could be employer-sponsored or bought directly from an insurance company.
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