Annuity Lesson #23
Understanding Joint and Survivor Annuities: A Complete Guide
Jeremiah Konger
CEO
"An annuity may be particularly valuable for women who are concerned about outliving their money."
When purchasing an annuity, you can add a rider that insures both yourself and your spouse, which is known as a joint and survivor annuity. This retirement plan guarantees a monthly income that will continue after either of you passes away.
But is it a better financial choice than, let’s say, investing in two separate annuities? Let’s find out!
Quick Facts
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A joint and survivor annuity pays income to two people — usually spouses — for as long as either is alive.
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Also called joint life annuities, they’re offered by insurance companies in exchange for a lump-sum premium.
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You can choose different payout options (100%, 75%, 50%) that affect income amounts.
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These annuities help ensure that surviving spouses don’t outlive their income, but they typically offer lower monthly payments than single-life annuities.
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Ideal for couples who rely on shared retirement income.
What Is a Joint and Survivor Annuity?
A joint and survivor annuity is an insurance contract that provides regular lifelong income for two people (often a married couple).
Annuities are generally an investment opportunity for pre-retirees and retirees who seek to grow their savings and receive a permanent income stream after the contract’s term.
A joint life annuity functions like other annuities but is specifically designed to provide lifetime income for two individuals, typically spouses. One of its key advantages is that it ensures continued payments for as long as either person is alive, offering financial security even if one partner lives many years beyond the other.
How Joint and Survivor Annuities Work
To understand how joint life annuities can benefit you, it’s important to know how they work. Here are key considerations:
Insurance company
Purchasing a joint and survivor annuity requires signing a contract with an insurance company, so choosing a reliable one that offers high annuity rates and is known for its good reputation is a smart decision.
Type of joint and survivor annuity
Annuities are versatile, and the same can be said about joint life annuities. Your payout will depend on one of the following types:
- Immediate vs. deferred: Immediate annuities pay out right after purchasing them, while deferred annuities grow your money tax-free (e.g., 5 years) until you start accessing your funds.
- Fixed vs. variable: Your annuity can have a fixed interest rate or a variable interest rate, meaning it is linked to market fluctuations.
Using a fixed rate calculator can help you estimate how much you can maximize your savings and whether the contract’s interest rate is sufficient.
Tax Implications
With a qualified annuity, which can be funded through a 401(K) or IRA, the tax applies on both the contributions and earnings.
With a non-qualified annuity, which is funded with after-tax dollars, you will only need to pay taxes on your gains.
Joint life annuities can also accumulate your money tax-free until your first withdrawal. This means the monthly payments will be considered as taxable income.
Investment amount
Typically, investors purchase a joint life annuity by making a single lump sum payment. However, choosing the amount may directly impact how much of an income you and a surviving spouse receive.
The amount of money to invest will depend on:
- Type of joint life annuities
- Life expectancies of both annuity owners
- Any fees associated with the contract
- Any changes that may be applied after the death of one owner
Discussing all of these factors and asking the right questions will help you choose an annuity that suits you and your spouse’s needs.
Payouts
Annuity payouts typically start at retirement, often at age 60, 65, or later. Depending on what you choose, the payments are received monthly or quarterly for the rest of your lives.
With joint and survivor annuities, if the primary annuitant passes first, the survivor continues to receive income. However, some contracts reduce this amount by 30%-50% to the surviving spouse. Alternatively, some investors opt for lower payments that will remain the same for the surviving spouse.
Types of Joint and Survivor Annuity Payouts
There are 3 types of joint and survivor annuity payouts: 100%, 70%, and 50%. Each option determines how much the main annuitant and the beneficiary will receive throughout their lifetime.
What does a 100% joint and survivor annuity mean?
A joint-and-100% survivor annuity means each individual included in the contract receives the full and original amount. It offers more security to both annuitant and beneficiary than other payout options. On a side note, this type offers the lowest starting payments.
What does a 75% joint and survivor annuity mean?
A joint-and-75% survivor annuity is the one that pays 75% of the original income to the surviving spouse, while the main annuitant receives a higher amount.
What does a 50% joint and survivor annuity mean?
A joint-and-50% survivor annuity provides half of the original payment to the surviving spouse. It offers lower protection for the survivor, but provides higher initial payments while both are alive.
Comparison Table
| Option | While Both Alive | After One Passes | Common Use Case |
|---|---|---|---|
| 100% Joint & Survivor | $2,000/mo | $2,000/mo | Maximum security for the surviving spouse |
| 75% Joint & Survivor | $2,200/mo | $1,650/mo | Balance of income and survivorship |
| 50% Joint & Survivor | $2,400/mo | $1,200/mo | Higher income now; less survivor support |
Real-Life Examples of Joint and Survivor Annuity Payouts
When choosing a joint life annuity, you will be presented with three options: 50%, 75%, or 100%. See the examples below to understand how these investments work:
- Mark and Lisa, both at 65, buy a joint-and-100% survivor annuity. Mark receives $409 a month until he passes away at 72. But Lisa continues receiving the same monthly income until she passes at 89. If Lisa dies first, Mark continues to receive $409 a month.
- Chris and Lauren purchase a joint-and-75% survivor annuity. Chris receives $429 a month for the rest of his life. If Chris dies first, Lauren receives continuous payments of $322 a month. However, if Lauren dies first, Chris receives the initial lifelong amount, $429 a month.
- John and Caitlin buy a joint-and-50% survivor annuity. John receives $450 a month for life. If John dies first, Caitlin receives $225 a month as lifelong payments. If Caitlin dies first, John receives initial payments of $450 for the rest of his life.
In short, depending on the joint and survivor annuity you choose, the primary annuitant will receive a higher or the same amount of payments, and the surviving spouse will receive a reduced (or the same) income.
Pros and Cons of Joint Life Annuities
Not all investments are made equal, and joint life annuities offer both advantages and disadvantages that may be groundbreaking for your personal situation.
| Pros | Cons |
|---|---|
| Income continues for both spouses | Lower payouts than single annuity |
| Removes worry about outliving savings | Typically cannot be changed later |
| Predictable, guaranteed income | Less liquidity (money is locked in) |
Is a Joint and Survivor Annuity Right for You?
A joint and survivor annuity can be a smart option for couples looking to ensure financial support for the surviving partner. Unlike a single-life annuity, which only provides income for the annuitant's lifetime, a joint and survivor annuity continues to pay out after one partner passes, making it especially valuable for couples with one primary earner.
While a single-life annuity stops payments upon the annuitant’s death, some allow for the addition of riders, such as death benefits, which offer a lump sum or continued payments to a designated beneficiary.
Taking all these into consideration, there are other factors to keep in mind:
Age and Health
If both you and your partner are in good health and expect a long retirement, a joint life annuity could mazimize long-term security. However, of one spouse has a significantly shorter life expectancy, other income strategies might be more efficient.
Dependence on Shared Income
Joint and survivor annuities could be quite helpful for couples who rely on a single retirement benefit or pension. Even after the death of a spouse, a surviving partner will not be left alone with nothing. This can potentially prevent income gaps after death.
Comparing Alternative Options
Joint life annuities are not the only option available to retirees. There are other investment opportunities that could better suit your situation:
- Single-life annuity: Pays more upfront but ends with the first death.
- Pension maximization: Some retirees choose to take a larger single-life pension and buy life insurance for the spouse instead — but that requires underwriting and careful planning.
- Partial annuitization: You could use a portion of your savings for a joint annuity and keep other assets for flexibility.
How Annuity Association Can Help
Making the right choice is not easy, especially for a long-term investment as an annuity. At Annuity Association, we understand that finding the right financial product is not about numbers – it’s about peace of mind. Our expert consultants can help couples to:
- Compare joint annuity options from reputable insurers
- Understand payout scenarios and long-term impact
- Use our annuity calculator to estimate monthly income
- Make confident, informed decisions
Schedule a call with our expert to explore plans tailored to your retirement goals.
FAQs About Joint and Survivor Annuities
What is the difference between joint and single annuities?
A single annuity ends when the annuitant dies. A joint annuity continues for the second person’s lifetime.
What happens if both annuitants die early?
If the contract includes a period-certain feature or refund rider, beneficiaries may receive remaining payments. Otherwise, payments stop.
Can you change your annuity once it’s started?
Typically no. Most annuities are irrevocable once payments begin, so it’s crucial to choose the right option upfront.
Is a joint and survivor annuity taxable?
Yes, payments are taxed as ordinary income, but growth inside the annuity is tax-deferred until you receive it.
Can same-sex spouses or partners use joint annuities?
Yes. Most insurers offer joint annuities to any legally recognized spouses or domestic partners.
Conclusion
A joint and survivor annuity can be a powerful tool for protecting both spouses’ financial futures, offering income that doesn’t run out with the first death. While the payouts may be lower than other options, the long-term peace of mind for your loved one can be well worth the trade-off.
If you and your partner want to ensure retirement income for life, a joint annuity may be exactly what you need.
Talk to the Annuity Association team today to compare joint and survivor options, run income projections, and make the right move for your retirement security.
Annuity Expert
Jeremiah Konger
PS - Here's 3 ways we can help you learn more about annuities.
1. Watch Videos on How to Identify The Highest Paying Protected Income & Growth Annuities.
2. Watch Videos That Reveal What to Look For When Buying A Protected Growth Annuity.
3. Click Here To Access Our Annuity Review Vault To Compare The Pro's and Con's of Dozens of Annuities.
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