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An annuitant is a person whose age and life expectancy affect the size of the monthly payments that are paid to the owner of an annuity. When an annuity owner names two annuitants, they are commonly known as joint annuitants. If you're married, this may be a good option for you and your spouse. Here's some information on what's involved when you name or become a joint annuitant.
Annuitants & Annuity Owners
Annuity owners are not always annuitants. Annuity owners are those who purchase annuities and can make changes to the contracts. Usually, they purchase the annuities for themselves and are, therefore, also the annuitants. But some annuity contracts allow the owner to name two annuitants, and they're referred to as joint annuitants. Married couples often choose this option.
Joint & Survivor Annuities
A common type of annuity with joint annuitants is a joint and survivor annuity. This is often purchased by married couples and can provide income for two people, with payment based on the lives of the owner and spouse, who is the joint annuitant. If one spouse dies, the survivor, who is the joint annuitant, would continue to receive benefits of the annuity. However, depending on the annuity option selected, monthly income annuity payments may be reduced for the surviving spouse. This reduction would be stated in the annuity contract.
The Internal Revenue Service has rules for joint and survivor annuities that are part of certain tax-qualified retirement plans. Under IRS rules, when the annuitant dies, payments continue on to the joint annuitant and must be no more than 100% and no less than 50% of the joint annuity's original payment amount.
How Payments Can Differ for Joint Annuitants
How annuity payments are calculated is another part of understanding annuities. One factor that influences the amount of payments is how many payments the annuity issuer expects to make. The more payments an annuity is projected to issue, the lower each individual payment will likely be. For example, if an annuity issuer expects to make payments for 10 years, the payments will likely be higher than if they're expected to pay for 20 years.
The same principle can impact the payments from a joint annuity. An annuity that has joint annuitants will often be more expensive, or have smaller payments, than an annuity purchased for an individual. That's because the annuity lasts the longer of the two annuitants' lives and, therefore, is more likely to make more payments than an annuity for one individual.
What to Consider Before Naming a Joint Annuitant
If you're deciding whether you and your spouse (or someone else) should become joint annuitants, you might want to ask yourself a few questions to determine which arrangement may be right for you.
First, you might consider how the payments — both during your lives and after one of you dies — will factor into your long-term financial goals. Payments from a joint annuity may be less than those from a single annuity. However, a joint annuity can help ensure that a surviving spouse (or other joint annuitant) receives payments if the other annuity owner dies. Part of this conversation could involve asking questions such as:
- What payment amount is needed for both annuitants to support their lifestyle and expenses?
- Do you have other assets, such as a life insurance policy, to help provide for the surviving joint annuitant in the event that one of you should die?
- How much would the joint annuity payment be reduced after the death of a joint annuitant?
These questions could help you decide whether naming a joint annuitant is right for you. For more information, and to help ensure that your contract is set up correctly, consider speaking with a financial representative.