Lifetime Payout Annuity

Lifetime Payout Annuity

A lifetime payout annuity is a type of retirement investment that pays out a portion of the underlying portfolio of assets for the life of the investor. A lifetime payout annuity is a type of retirement investment that pays out a portion of the underlying portfolio of assets for the life of the investor. A lifetime payout annuity is a type of retirement investment that pays a portion of the underlying portfolio of assets for the life of the investor. An investor may choose a lifetime payout annuity in order to eliminate the risk of outliving the amount of money set aside for retirement. Annuities are created and sold by financial institutions, which invest funds deposited by individuals over time, and then when the client is ready, begin issuing regular payments drawn from the account to the annuity holder.

A lifetime payout annuity is a type of retirement investment that pays a portion of the underlying portfolio of assets for the life of the investor.

What Is a Lifetime Payout Annuity?

A lifetime payout annuity is a type of retirement investment that pays out a portion of the underlying portfolio of assets for the life of the investor. Such annuities are sold by insurance companies and some financial institutions.

When an investor buys an annuity, they can pay a lump sum amount or deposit a series of payments to the insurance company. The insurance company, in turn, agrees to pay the buyer — called the annuitant — a series of distributions. There are various types of annuities with different payment schedules.

A lifetime payout annuity is a type of retirement investment that pays a portion of the underlying portfolio of assets for the life of the investor.
The guaranteed payments associated with lifetime payout annuities eliminate the risk for investors of outliving their retirement funds.
Deposits into annuities are usually locked up for a period of time, and a penalty would be incurred for early withdrawals.

Understanding the Lifetime Payout Annuity

An investor may choose a lifetime payout annuity in order to eliminate the risk of outliving the amount of money set aside for retirement. The guaranteed payments for life reduce a person's longevity risk. Longevity risk refers to the chance that an investor's life expectancy or survival rate exceeds expectations leading to more-than-expected cash payments for the insurance company.

A lifetime payout annuity can be structured to provide a fixed or a variable payment:

Payments can be made to the annuitant in monthly, quarterly, annual installments. A downside to a lifetime payout annuity is that they may leave little or nothing for the investor's heirs. Payouts from a lifetime payout annuity typically end with the death of the policyholder.

The policyholder can purchase adjustments to the plan, which arrange for payments to continue to an estate or allow for a guaranteed number of payments. These adjustments may result in a smaller payment for the annuity holder.

Special Considerations

An annuity is a financial product that pays a fixed stream of payments to an individual. It is primarily used by retirees as a form of guaranteed income.

Annuities are created and sold by financial institutions, which invest funds deposited by individuals over time, and then when the client is ready, begin issuing regular payments drawn from the account to the annuity holder.

The period of time when an annuity is being funded and before payouts begin is referred to as the accumulation phase. Once payments begin, the contract is in the annuitization phase.

Annuities are appropriate for individuals seeking stable, guaranteed retirement income. Because the money invested in the annuity is not accessible without a penalty, it is not recommended for younger people or those who don't have an emergency fund that they can tap into if necessary.

Criticism of Annuities

One criticism of annuities is that they are illiquid, meaning money can't be moved in and out of annuities easily. Deposits into annuities are usually locked up for a period of time — called the surrender period. A penalty would be incurred for early withdrawals.

The surrender periods can last anywhere from two to more than 10 years, depending on the particular product. Surrender charges can start out at 10% or more, and the penalty typically declines annually over the surrender period.

Related terms:

Accumulation Period

An accumulation period is the phase in an investor's life when they build up their savings and investment portfolio to save for retirement.  read more

Annuitant

An annuitant is an individual who is entitled to receive a periodic payment, or annuity. The recipient of a pension or an investor in an annuity may be an annuitant. read more

Annuitization Phase

The annuitization phase of an annuity refers to the period when an annuitant starts to receive payments from his or her investment in the annuity. read more

Annuities: Insurance for Retirement

An annuity is a financial product that pays out a fixed stream of payments to an individual, primarily used as an income stream for retirees.  read more

Cost-of-Living Adjustment (COLA)

A cost-of-living adjustment (COLA) is made to Social Security and Supplemental Security Income to adjust benefits to counteract the effects of inflation.  read more

Hybrid Annuity

A hybrid annuity is a retirement income investment that allows investors to split their funds between fixed-rate and variable-rate components. read more

Illiquid

Illiquid is the state of a security or other asset that cannot quickly and easily be sold or exchanged for cash without a substantial loss in value.  read more

Immediate Variable Annuity

An immediate variable annuity is an insurance product where an individual pays a lump sum upfront and receives payments right away. read more

Inflation

Inflation is a decrease in the purchasing power of money, reflected in a general increase in the prices of goods and services in an economy. read more

Longevity Risk

Longevity risk is risk to which a pension fund or life insurance company could be exposed as a result of higher-than-expected payout ratios. read more