Joint and Survivor Annuities (What is a Joint Life Annuity?)

An annuity is a financial planning tool issued by a life insurance company. One of the advantages of buying an annuity is that it is the only product that can provide guaranteed income for yourself.

To extend this lifetime benefit to your spouse, you would choose an annuity payout called a “joint and survivor annuity,” also known as a “joint life annuity.” Let's explore how this unique product works, and if it might make sense as a part of your overall financial plan.

Joint and Survivor Annuity Definition

There are a lot of different types of annuities, but they all work in the same way: For deferred annuities, you pay money now and receive payouts later. For immediate annuities, also known as income annuities, you pay a lump sum and begin to receive a stream of payments immediately.

Payouts can be in the form of a lump sum, but they usually come in periodic income payments. This is how annuities can offer retirement income for the rest of your life.

Annuities can differ in when you want to receive your annuity payments. In a deferred annuity, you purchase the annuity and the account builds value over time.

Deferred annuity payouts are deferred until you need them. With an immediate annuity, the annuity payments begin right away.

Annuities can also differ in who receives payouts. If you are doing retirement planning just for yourself, you would buy a single life annuity. This ensures that you (the annuity owner and annuitant) receive annuity payments.

But what about married couples?

If you’re married, you may want to purchase a joint life annuity.

A joint life annuity, also known as a joint and survivor annuity, is an annuity and ensures that both you and your spouse receive annuity payments. And, if one of you should die, this product provides the surviving spouse with annuity payments for the remainder of their life.

How A Joint Life Annuity Works

Essentially, the purpose of a joint and survivor annuity is to benefit more than one person. When you first buy and set up an annuity using this immediate annuity option, you and your spouse (or joint annuitant) can receive monthly benefits for life.

A joint life annuity allows you and your spouse to receive monthly income payments for as long as you both live.

Once you pass away, your surviving spouse will receive payments for the rest of their life, but it will only amount to a smaller amount of your original payment.

Typically the surviving spouse’s payments are 50% of the original payment, but your exact percentage will be specified in your annuity contract.

Your monthly payments are lower than they would be under a single-life annuity because they’re covering both you and your spouse.

However, you get the peace of mind of knowing that your spouse will have steady income when you die.

And a joint life annuity, along with other assets like a pension plan, can be a valuable addition to your overall strategy for receiving regular retirement income.

Joint and Survivor Annuity Benefits

The primary benefit of a joint life annuity is obvious.

It allows you to take care of your spouse’s income needs if you were to die first. Your spouse would keep receiving annuity payments for the number of years specified in the contract. This would help them continue to live the lifestyle they’re accustomed to.

An interesting fact related to this benefit is that men generally have lower life expectancies than women. So when a man predeceases his wife, she may continue receiving payments for years or even decades. When deciding between a joint life annuity and a single life annuity, factor in you and your spouse's age differences and life expectancies.

Joint and Survivor Annuity Disadvantages

There are a handful of potential disadvantages to selecting a joint and survivor annuity payout option:

• Both you and your spouse receive monthly income payments, but the amounts are smaller than what you would get with a single life option.
• The surviving spouse will receive only a portion of the benefits that you both received. For example, suppose you both were enjoying a $7,000 monthly payout. When you die, your surviving spouse will receive less than that amount each month. You can specify the terms in your annuity contract, but it's typical to choose a 50% survivor benefit, meaning that your surviving spouse would receive $3,500 after you die.
• Once you purchase a joint life annuity, you generally can’t change its payout structure.

Tax Implications

A joint and survivor annuity can also be a useful product to shelter taxes.

The money you invest in an annuity grows tax-deferred over time, meaning you won’t pay taxes on it until you begin taking withdrawals. With a qualified annuity, which you can fund through a traditional 401(k) or IRA, both the contributions and earnings are taxed at your ordinary income tax rate.

With a non-qualified annuity, which you fund with after-tax dollars, only the earnings are taxable. You can position an annuity as one of the important pieces of your retirement planning puzzle. Add it to your traditional 401(k) and IRA plans. Or add it on top of your Roth IRA and taxable investment accounts to help manage your tax liability in retirement. Remember that while taxes are deferred, you still have to pay them once payouts begin.

What Happens if You Die With a Single Life Annuity?

Let's say you're married and you purchase a single life annuity. You name yourself as the annuitant, so you're the only one who receives any payments. The upside is that the monthly payments are higher than they would be with a joint life annuity. The downside is that if you die before receiving your full payout, that's it.

Unless you purchase death benefits or a period certain provision, the payments stop, and the annuity contract ends. Having the death benefit option in the contract ensures that a beneficiary receives the premium paid minus any income payments the owner had received prior to their death. Remember that the beneficiary would not receive any money if income payments exceed the original premium paid.

Getting a period certain option, though, provides for a continuation of payments to the beneficiary for the remainder of the period chosen (life, 10 years, etc.). If the period certain time has passed, the beneficiary will not receive any additional payments.

So there is a real upside to choosing a joint and survivor annuity. If you’re married and you die before your spouse, your surviving spouse will continue to receive payments for the duration of the contract. Plus, you’ll both receive income as retirees as opposed to just one of you receiving retirement income.

Where a Joint Life Annuity May Fit Into Your Retirement Plan

Your retirement goals and needs will dictate the role that a joint life annuity can have in your retirement savings plan.

Disbursements from other retirement planning vehicles (like your pension benefit, 401(k), IRA, or Social Security) can determine how an annuity can fill any gaps in needed income. Speak with your financial advisor to develop a retirement budget and determine your monthly income needs. And remember to factor in the life expectancies and age differences between you and your spouse. That can really help drive the decision between a single life annuity and a joint life annuity.

To recap:

• A joint and survivor annuity is an insurance product for married couples that continues to make regular payments as long as one spouse lives.
• There are also provisions for making payments to a third party when both annuitants die before monthly payments have exceeded the principal.
• A joint and survivor annuity has the advantage of providing income when people live longer than expected, just like other annuities.

Canvas is a good place to start your retirement planning. At Canvas, we offer deferred fixed annuities with competitive rates.

This allows you to build up the value of your retirement account safely and steadily. And when you buy, you’ll have the opportunity to define your payout and beneficiary options with one of our non-commissioned agents if you choose. Canvas annuities offer extremely competitive rates and can be purchased 100% online with no commissions paid to agents. Check us out today and see how much you can earn!