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What is joint & survivor annuity?

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A joint and survivor annuity can be a smart planning tool, allowing you to create an income stream and may also allow the passing of remaining funds to a beneficiary. Learn more about how joint and survivor annuities work and when to start planning for them.

What is joint & survivor annuity?

A joint and survivor annuity is a type of immediate annuity that guarantees payments for as long as the annuity owner or the beneficiary lives. The payments from a joint and survivor annuity would last for the duration of the annuity owner's life plus the life of another person.

How do joint & survivor annuities work?

Joint and survivor annuities work in a relatively simple way: Annuities are established through a contract with an insurance company or a financial institution that offers insurance products and services. The annuity owner, or annuitant, names a beneficiary and typically funds the annuity with a lump sum payment, such as money from a savings account, an individual retirement account (IRA) or a 401(k).

Payouts commonly occur on a monthly basis, but the annuitant or owner can decide on the frequency of the payout. The initial withdrawal can start as early as 30 days after initiating the contract (but at least within one year). Joint and survivor payments last for the life of the annuitant as well as the life of the beneficiary.

Who benefits from a joint & survivor annuity?

Joint and survivor annuities are flexible tools, generally designed to act as an income stream during retirement for couples with little or no guaranteed income sources outside of Social Security. Although payments may be slightly lower compared with single-life annuities, the payments could last longer. An annuity can provide vital income, particularly if one or both live longer than expected.

What are the pros and cons of a joint & survivor annuity?

Joint and survivor annuities offer multiple benefits—but as with any type of financial or insurance product, they're not for everyone. Consider both the pros and cons of setting up a joint and survivor annuity.

The pros of a joint & survivor annuity include:

  • Immediate payouts. Payments can begin one month after your annuity is set up or can be delayed for up to one year.

  • Predictable income for life. Payments remain consistent throughout your life and the life of your beneficiary, making it less likely you'll outlive your income.

  • Survivorship. Payouts continue for as long as you and your spouse or partner live. Survivorship has been used as an estate planning tool by people who want to reduce the future tax burden for their heirs.

  • Complimenting savings, investments and Social Security. A joint and survivor annuity can help bridge the gap between retiring and claiming your Social Security benefits without liquidating savings from retirement accounts.

  • Ease of setup and management. Once you purchase an immediate annuity, there are no additional steps and nothing to monitor.

  • Income is not subject to market fluctuations. Since the joint and survivor annuity is not invested in the market, it isn't subject to volatility that may impact your income.

Yet this arrangement can have drawbacks, such as:

  • High upfront costs. Since a joint and survivor annuity is a type of immediate annuity, it's funded with a large upfront cash deposit. This differs from other types of annuities or savings vehicles, where smaller amounts can be saved over long periods of time.

  • Loss of liquidity. When you purchase an immediate annuity, you don't have access to the cash outside of the monthly payouts. If you need the money sooner, you won't be able to withdraw it (with some exceptions that may incur a large penalty).

  • No accumulation phase. Since the annuity is funded with a lump sum, there is no accumulation phase, where cash value increases and has the opportunity to grow. Without an accumulation phase, there is less growth potential.

  • Smaller inheritance for other beneficiaries. There is no remainder benefit to go to your heirs after you and your secondary annuitant are no longer living, even if you both die shortly after beginning the contract. When you pass away, the balance of your annuity will go to the insurance company's general account. It will not go to your heirs.

What's the bottom line?

It's never too soon to start thinking about the potential benefits of a joint and survivor annuity. However, a joint and survivor annuity may be most appropriate in the later stages of your life.

Consider your goals: What is joint and survivor annuity meant to accomplish for you personally as you reach retirement age? Keep in mind that this kind of financial contract is not suitable for everyone. As you get closer to retirement, the potential need for an annuity will become more clear.

Although insurance products can be relatively simple to implement, it's always wise to discuss your options with a financial advisor.

Thrivent and its financial advisors and professionals do not provide legal, accounting or tax advice. Consult your attorney or tax professional.

Thrivent financial advisors and professionals have general knowledge of the Social Security tenets. For complete details on your situation, contact the Social Security Administration.