Joint and Survivor Annuity: Annuity for Multiple Beneficiaries

A Joint and Survivor Annuity makes payments to two or more beneficiaries, usually a couple, such that the surviving beneficiary continues to receive payments after the other person's death. Payments made to the deceased party cease.

A Joint and Survivor Annuity is a type of annuity that provides ongoing payments to two or more beneficiaries, typically spouses. The key feature of this annuity is that upon the death of one annuitant, the surviving annuitant continues to receive payments. However, the payments made to the deceased annuitant are not transferred to the survivor.

How It Works

Definition and Structure

A Joint and Survivor Annuity is designed to ensure that the annuity payments continue for the lifetime of the surviving annuitant. Upon the death of the primary annuitant, the surviving beneficiary receives payments, usually at a reduced percentage of the original amount. The structure can vary:

• 100% Joint and Survivor Annuity: The survivor continues to receive the same amount of payment.
• 50% Joint and Survivor Annuity: The survivor receives half of the original annuity payment.
• Two-thirds Joint and Survivor Annuity: The survivor receives two-thirds of the original payment.

Example

Consider a couple, Alice and Bob, who purchase a 100% Joint and Survivor Annuity. They receive $2000 monthly. If Bob dies, Alice will continue to receive $2000 monthly for the rest of her life. If they had opted for a 50% joint annuity, Alice would receive $1000 monthly after Bob’s death.

Historical Context

Evolution of Annuities

Annuities have been available since Ancient Rome, but the modern concept of Joint and Survivor annuities emerged in the 20th century, tailored to meet the financial security needs of couples in retirement.

Applicability

Where It’s Used

Joint and Survivor Annuities are commonly used in:

• Retirement Plans: To ensure that the surviving spouse continues to get income after the retiree’s death.
• Pension Plans: Many pension plans offer joint and survivor options to give lifetime income to the surviving spouse.

Comparisons

Joint and Survivor Annuity vs. Single Life Annuity

• Single Life Annuity: Provides payments to only one person for their lifetime.
• Joint and Survivor Annuity: Provides payments to multiple beneficiaries, ensuring income for the survivor.

Related Terms

• Annuitant: The person receiving payments from an annuity.
• Beneficiary: The person designated to receive benefits upon the annuitant’s death.
• Pension: A retirement plan that provides regular payments.

FAQs

What happens to the annuity payments if both beneficiaries die?

If both the primary and secondary beneficiaries pass away, the annuity ceases, unless there is a designated contingent or tertiary beneficiary.

Can the payment percentages be customized?

Yes, many annuity providers offer customizable payment percentages for the survivor.

Are Joint and Survivor Annuities more expensive?

Generally, yes. Because they cover two lives, the payments are typically lower than a Single Life Annuity for the same initial principal.

References

1. Investing in Annuities. “Understanding Annuities.” Financial Advisors Association, 2023.
2. Pension Plans. “Joint and Survivor vs. Single Life Annuities.” Retirement Benefits Journal, June 2022.

Summary

A Joint and Survivor Annuity ensures financial continuity for couples by providing a designed annuity payment structure that extends income to the surviving beneficiary. These annuities underscore the importance of long-term financial planning and provide a safety net for surviving loved ones. While typically more costly than single life annuities due to the dual coverage, they offer peace of mind and sustained income flow, making them a popular choice in retirement and pension plans.