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A fixed annuity is a type of insurance policy you can purchase that will guarantee you fixed dollar amount payments for the length of the contract. There are a few ways a fixed annuity can be structured, but for the most part the term of the contract is indefinite.
Often the terms of the fixed annuity are based on your need and life expectancy. We will go over a few different scenarios so you can determine which contract term is best for you:
Single Life Fixed Annuity:
This indicates that you will receive a guaranteed monthly payment for as long as you live. The remaining principal will not pass to your heirs and your spouse will not continue receiving payments when you are gone.
A single payment of $1,000,000 will give you a guaranteed monthly payment, beginning immediately of roughly $6,000 per month.
A single payment of $500,000 will give you a guaranteed monthly payment, beginning immediately of roughly $2,988 per month.
Single Life Fixed Annuity with Beneficiaries:
This type of fixed annuity will protect your investment for a predetermined amount of time. You will still receive payments every month, but if you should go within a certain time period, the benefits will continue to go to your estate for a predetermined amount of time.
A single payment of $1,000,000 with a five year beneficiary guarantee will drop your monthly payment to $5,900.
A single payment of $1,000,000 with a ten year beneficiary guarantee will drop your monthly payment to $5,700.
A single payment of $1,000,000 with a twenty year beneficiary guarantee will drop your monthly payment to $5,100.
Once again, this payment is guaranteed for your entire life and you cannot outlive the monthly payments no matter what. However, with a traditional annuity the payments stop the day you pass. With the above option, they will continue to go to your estate for the predetermined amount of time.
Joint Life Fixed Annuity:
A joint life policy will cover both you and your spouse. After you pass, your spouse will continue to get the full benefit every month until he or she passes. This adds some complexity to the annuity equations as the payments are higher for females and the payment can be effected by the age of your spouse. For our calculations we will make the husband the primary and the wife the secondary.
Both you and your wife are 65 years old:
A single payment of $1,000,000 will give you and your spouse after you are gone a guaranteed monthly payment, beginning immediately of roughly $5,000 per month.
A single payment of $500,000 will give you and your spouse after you are gone a guaranteed monthly payment, beginning immediately of roughly $3,000 per month.
You are 65 years old and your wife is 60:
A single payment of $1,000,000 will give you and your spouse after you are gone a guaranteed monthly payment, beginning immediately of roughly $4,500 per month.
A single payment of $1,000,000 will give you and your spouse after you are gone a guaranteed monthly payment, beginning immediately of roughly $4,200 per month.
These are the basic fixed annuity options. However, there are many different ways to structure annuities to protect your spouse and to leave the unpaid balance of your annuity to your heirs.
