How Many Years Does an Annuity Last? Annuity Terms Explained

You choose how long your annuity payments last. You can choose to receive your payments as a single lump sum, as regular payments over a specified term, for the rest of your life, or the rest of two people’s lives. You also choose the length of your annuity contract term.

Annuities are flexible. While every annuity is designed to help you feel financially secure in retirement, it can be customized substantially to fit your needs. One of the features you can customize is the lenght of time the annuity will last.

Annuities typically have two phases: an accumulation phase and a payout phase. During the accumulation period, your annuity account earns interest and grows. Then, during the payout phase, you get paid a regular stream of income.

When you buy an annuity, you choose a contract term length. For example, Canvas offers annuities for three-year, five-year, and seven-year terms. Then, when you’re ready to convert your annuity to the payout phase, you can choose whether it pays you out all at once, for a predetermined period, or over your lifetime.

In this article, we explain how long each phase of an annuity lasts and how to select the options that are best for you.

Do Annuities Last for Life?

Annuity payments can last for life — if you choose that option.

When you annuitize an annuity (convert it to a stream of income payments) you select how long those payments will last. These are called payout options. There are several different options to choose from.

You can choose to receive payments for a predetermined term (“period certain”). You can also choose to receive payments for the rest of your life (single life) or for the rest of both your life and another person’s life (joint life). You can even choose to receive your payout as a single lump sum.

The lump-sum payment option ends your annuity contract, so payments end immediately.

The period certain annuity payout options may not last for the rest of your life. You could outlive your annuity income payments if you choose this payout option.

The lifepayout option does last for your life. You can’t outlive your annuity payments if you choose this option. If you choose the joint life option, it’ll last the rest of both your life and one other person.

These options are relevant to all types of annuities: immediate annuities, deferred annuities, fixed annuities, fixed-indexed annuities, and variable annuities. Here’s exactly how each of these payout options works.

Lump Sum Payouts

This option provides your entire annuity retirement income in a single payment upfront.

This option may be unpopular because it can create a heavy tax burden in the year the money is distributed. It also fails to provide a regular income, which is usually the reason people buy an annuity. However, it does give you a big chunk of cash all at once, that you can use for whatever you like.

This option may be useful if you need the money in an emergency or if your financial position allows it.

Period Certain Payouts

When an annuitant chooses a period certain payout option, they specify how long they will receive payments. The annuity will provide payments for that fixed period. Once the term ends, payments will stop — even if the annuitant is still alive. Periods can last five to 30 years.

For example, imagine you bought a fixed annuity. And imagine you chose a 10-year period certain payout option. You would receive guaranteed income payments for 10 years. At the end of those 10 years, the payments would end, even if you were still alive.

What if you die before the 10-year term is up? Any leftover assets can be given to your beneficiary.

The benefit of period certain annuities is that they have a guaranteed payout for a set number of years. The payments are usually higher than payments for life, and if you die before the term is up, any remaining payments are passed on to a beneficiary. The drawback is that you can outlive your income payments. They are not able to guarantee you an income for the rest of your life.

This option is best for people that want higher income payments and don’t mind the possibility that they could outlive their payments.

Life Payouts

The life payout, also called “single life” or “life only”, is a payout option where an annuitant receives guaranteed income for the rest of their life. Payments stop when the annuitant dies.

For example, imagine you bought a fixed annuity and chose the single-life payout option. And imagine that you lived for 30 years after you annuitize your annuity. You would receive income payments for those 30 years, and then the payments would stop.

Now imagine you only lived for three years after you annuitize. Your annuity payments would only last for those three years.

With this option, payments are not passed onto your beneficiary after you die (unless your annuity has death benefits). If there are funds left in your annuity account after you die, the insurance company keeps them.

The biggest advantage is that you have guaranteed income for life; however, the payouts are usually lower than the period certain payouts and your annuity income would not be passed on to beneficiaries, like your spouse.

This payout option is ideal for people who want to feel secure knowing that they will receive an income for life and who do not have a beneficiary or anyone else who relies on the income.

Joint Life Payouts

For people that want to ensure their spouse or another person continues to receive an income, many life insurance companies offer a joint payout option. This is often called a “joint and survivor annuity.” In this option, annuity payments last as long as either of the joint annuitants is alive.

For example, imagine you opted for a joint and survivor annuity for yourself and your spouse. You live for five years after you annuitize, and your spouse lives for 25 years. The monthly payments would last for 25 years.

Note that this option often comes with several other choices, like whether you want payments to reduce when one person dies, and by how much. For example, you could choose to have higher payments while both spouses are alive, and reduce payments when one spouse dies.

The appeal of this payout option is that payments usually last longer than a single life payoutand both of the joint annuitants can feel confident they’ll have an income for the rest of their lives. The disadvantage of this option is that the payments are usually lower than the single life or period certain options.

This payout option is best for individuals who don’t mind lower payments and who want to make sure both they and another person have a guaranteed lifetime income.

How Long Does the Accumulation Period Last?

The payout options described above are relevant for the payout phase of the annuity. They determine how long your annuity income will last.

You can also choose how long the accumulation period lasts.

The accumulation period is the period of time when the annuity is being funded. It’s when the account value grows tax deferred. Your annuity stays in the accumulation period until you choose to annuitize or until you withdraw your funds.

Normally, you can withdraw your annuity funds without paying extra fees once your annuity contract term ends.

Annuity Contract Terms

The annuity contract term is the period of time that the annuity stays in the accumulation phase.

For example, Canvas offers fixed annuities with terms of three, five, and seven years. During this time, the annuity earns interest and grows at the minimum fixed interest rate specified in your contract.

At the end of the contract term, you can choose to withdraw your funds, annuitize to receive periodic payments, or roll over into a new annuity contract.

How Long Is an Annuity Surrender Charge Period?

Annuities also have a surrender charge period. The surrender charge period is the period of time during which you may have to pay a fee —a surrender charge —to make withdrawals.

The surrender charge period of your annuity typically applies during the accumulation phase and lasts as long as your contract term. When you buy an annuity, ensure that you understand the length of the surrender period specified in your contract.

Choosing an Annuity That Will Last

Annuity products are both powerful and flexible. They come with many different options and choices. That’s a good thing because retirement planning is stressful. The different annuity options lets you customize your product to best fit your specific situation and retirement needs.

One of the most important decisions retirees will make when buying an annuity, besides choosing between different types of annuity, is how long the payouts will last. You can choose to receive your payouts as a lump sum, over a specific period of time, for the rest of your life, or for the rest of two people’s lives.

Not only that, but you decide the term of your contract and for how long your annuity will accumulate.

These decisions can be difficult, but they have an important impact on your retirement savings. Each option has pros and cons. If you’re not sure, it’s a good idea to consult with a financial advisor. They can help you figure out the right income options for your particular needs and financial goals.

If you have any questions about how an annuity can provide guaranteed income for life, have a chat with one of Canvas’ licensed reps.

If you’re ready to buy a fixed annuity that can offer guaranteed lifetime income through retirement, apply today.