Annuities

Purpose & Function

MR. WATSON: This will be a nice review on annuities.

Student: I'm tired of annuities!

MR. WATSON: I'm just tired!

MR. WATSON: Annuities are "glorified" savings accounts. "After tax" dollars are deposited into an account (annuity) and the earnings (interest) grows tax deferred. They may be sold only by licensed life insurance agents, broker-dealers , or by banks, but even still, they must have an insurance license. Annuities were designed to provide a stream of income guaranteed for life, no matter how long that life lasts. This is possible because insurance companies have mortality tables which allow them to predict, very accurately, the life expectancy at any given age.

Structure & Design

Individual Annuities

• most common
• single annuitant (one who receives the money each month)

Joint & Survivor Annuities

• one check paid to one person, then at death, continues to be paid to a named survivor
• will pay until death of the last person
  • Joint and Full survivor (surviving spouse's benefit not reduced)
  • Joint and 2/3 (surviving spouse receives 2/3 of original monthly check)
  • Joint and 1/2 (surviving spouse receives 1/2 of original monthly check)
  • The higher the % of payout to the surviving spouse, the less the original check will be

Joint Life Annuities

• two or more annuitants
• check ends (stops) at first death (what???????)

MR. WATSON: Just be sure to watch out for the word "survivor". This tells you the check will continue until the second annuitant dies.