A client is 55 years old and nearing retirement. They are concerned about outliving their savings and want a guaranteed income stream for life. They also want to ensure that if they pass away prematurely, their spouse will continue to receive income. Which type of annuity payout option would be most suitable?
- AJoint and Last Survivor
- BLife Only
- CLife with Period Certain
- DRefund Annuity
Show answer & explanationAnswer & explanation
Correct answer: A. Joint and Last Survivor
A Joint and Last Survivor annuity payout option guarantees income for the life of the annuitant and, upon their death, continues payments to a named beneficiary (their spouse) for the rest of their life. This directly addresses both concerns: guaranteed income for life for the annuitant and continued income for the spouse. Life Only would cease payments upon the annuitant's death, Life with Period Certain guarantees payments for a minimum period but not necessarily for the spouse's entire life, and Refund Annuity ensures total payout of principal but not necessarily ongoing income for the spouse.
Why the other options are wrong
- B. Life Only ceases payments upon the annuitant's death, leaving the spouse without income.
- C. Life with Period Certain guarantees payments for a set period, but if the spouse lives beyond that period, payments would cease, not ensuring income for their entire life.
- D. A Refund Annuity guarantees that at least the original principal will be paid out, but it doesn't guarantee ongoing income for the spouse's lifetime if the annuitant dies early.
Joint and Last Survivor Annuity
An annuity payout option that provides income for two people (typically a couple) for as long as either of them is alive.
- Guarantees income for the life of the annuitant and then for the life of the named survivor.
- Payments typically reduce upon the death of the first annuitant.
- Offers the highest level of income security for a couple.
- Results in lower periodic payments compared to a 'Life Only' option due to longer payout expectation.
Memory trick: Joint and Last Survivor: two lives, one income stream.