As you approach retirement age, focusing on meeting your long-term income needs becomes more important than pursuing aggressive growth investments. A period certain immediate annuity can provide the steady income you need for a specified period in retirement, and it offers peace of mind by ensuring that income payments will continue to your beneficiaries if you pass away before the term ends.
What Is a Period Certain Immediate Annuity?
A period certain immediate annuity is an insurance product that guarantees payments for a specified period. It provides a steady income stream for a predetermined number of years, typically ranging from five to 30 years, but you can customize the duration to fit your needs. This annuity ensures you receive consistent payments throughout the chosen period, offering financial stability and peace of mind. If you pass away before the term ends, the annuity will continue to provide payments to your beneficiaries, depending on the contract terms. This makes it a valuable option for those seeking predictable income and protection for their loved ones.
I always tell my clients that constructing a financial portfolio with different products is a good way to diversify your retirement planning, as it allows you to have products for different stages of life. Period-certain annuities are one such product, where my clients have a defined amount and period that the annuity would pay. It’s guaranteed, and the duration my client chooses is based on their goals, knowing that there are no ifs and buts. Many of my clients will also use this type of annuity in a laddering approach to manage their taxes due on all the sources from which money is coming.
Aamir M. Chalisa, MBA, LUTCF, MDRTGeneral Manager at Futurity First Insurance GroupAamir M. Chalisa is the GM at Futurity First, leading Oak Brook’s top branch. With 30+ years’ expertise, chairs GAMA Global, driving diversity worldwide.
Comparing Period Certain Immediate Annuities With Other Types
Period certain immediate annuities differ from other types of annuities in the duration of their payment guarantees. With period certain immediate annuities, the payments are guaranteed for a fixed period, regardless of whether the annuitant passes away before the term ends. However, payments will stop once the fixed period ends, even if the annuitant is still alive.
Understanding the nuances of different annuity types can help tailor your retirement strategy. Below, we explore life-only annuities and joint and survivor annuities, each offering unique benefits and considerations.
Life-Only Annuities
Life-only annuities ensure regular income for the annuitant’s entire life but end when they pass away. There are no payouts to heirs or beneficiaries, so if the annuitant dies early, they forfeit any remaining value. Conversely, if they live longer, they benefit from ongoing payments that could exceed their initial investment. This type of annuity is suited for those prioritizing steady income during their lifetime over leaving assets behind.
Joint and Survivor Annuities
Joint and survivor annuities are designed to provide ongoing payments to a surviving spouse or partner after the annuitant’s death. Unlike life-only annuities, which cease payments upon the annuitant’s death, joint and survivor annuities continue to offer financial support to the surviving partner. However, these annuities generally do not extend benefits to surviving children or other dependents. By opting for this type of annuity, individuals can ensure that their spouse or partner will receive continued income, offering a measure of financial security and stability for the surviving individual.
Is An Annuity Right For You?
Key Benefits of Period Certain Immediate Annuities
The primary benefit of period certain immediate annuities is that they often include survivorship options, allowing beneficiaries to continue receiving payments if you, as the annuitant, pass away before the end of the period. This feature is particularly beneficial if your beneficiary is a child, as children typically cannot receive income from a joint annuity after your death.
Another advantage of period certain immediate annuities is their flexibility in payout periods, with options ranging from five to 30 years. While a longer payout period provides financial support over a more extended term, it reduces the amount of each monthly payment. Conversely, a shorter payout period results in higher monthly payments, but they last for a shorter duration.
Tax Deferral Benefits of Period Certain Immediate Annuities for Retirees
Income from period certain immediate annuities is typically subject to regular income tax, but the taxes are deferred until you begin receiving payments. This deferral can be particularly beneficial for retirees who may be in a lower tax bracket than they were during their working years, allowing them to keep more of their income. By deferring taxes, you can effectively manage your tax liability, potentially reducing the overall amount you owe.
Moreover, this tax advantage can be strategically timed to coincide with other retirement income sources, such as Social Security or withdrawals from tax-advantaged accounts, helping you maintain a steady income while minimizing tax impact. It’s important to consult with a tax professional to understand how these annuity payments will interact with your broader financial situation and to optimize your retirement strategy accordingly.
When To Choose a Period Certain Immediate Annuity
Period certain immediate annuities are most suitable for individuals with a moderate risk tolerance who need a guaranteed source of income for a specific period. These annuities are also ideal for those who want to exhaust the funds before a certain date when other retirement income streams will start.
On the other hand, if you are less concerned about the number of years the income is guaranteed and prefer to maximize your income for life, a fixed index annuity with an income rider might be more appropriate.
Consult a Financial Expert Before Choosing a Period Certain Annuity
Period certain immediate annuities can be an important component of a comprehensive retirement income plan. They offer a stable income stream that complements other investments and savings while helping to manage financial risks.
If you’re considering a period certain immediate annuity, it’s advisable to consult with a financial advisor or annuity expert. They can ensure that the annuity aligns with your broader financial goals and retirement strategy, and provide personalized recommendations based on your unique circumstances.
If the annuitant dies before the end of the guaranteed period, the remaining payments are made to the designated beneficiaries. This ensures that the intended support continues, even if the annuitant is no longer able to receive the income.
Once the annuity contract starts, the payout period is typically fixed and can’t be changed. This means that the terms you agree to at the beginning will determine the length and amount of payments for the entire duration of the contract.
Once the annuity contract starts, the payout period is typically fixed and can’t be changed. The payments from a period certain immediate annuity are also fixed and not influenced by market conditions, which helps provide a stable and predictable income stream.
Guarantee financial freedom with an annuity.