What Is a Joint and Survivor Annuity and How Does It Work?

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If you are looking for additional ways to fund your retirement, you may find yourself considering an annuity. With an annuity, you can guarantee a set monthly payment for the rest of your life. But what if you are married? Then you could choose a joint and survivor annuity instead. 

Let’s look into what a joint and survivor annuity is, walk through how they work and dissect all the details you’ll need to decide whether or not they’re right for your retirement needs.

What Is a Joint and Survivor Annuity and How Do They Work?

A joint and survivor annuity is in a contract with an insurance company that will provide a couple with guaranteed income each month as long as either spouse is still alive. In exchange, the annuity purchaser will make a lump sum or multiple payments when they take out the annuity.

A designated primary and secondary annuitant would exist within a joint and survivor annuity. If the primary annuitant were to pass away first, the secondary annuitant would continue to receive the same or reduced benefits until their death. However, if the secondary annuitant passes away first, the primary annuitant will continue to receive the same benefits until they die.

Joint and Survivor Annuity vs. Single Life Annuity

During your search, you may consider different types of annuities for your retirement account. If you are single, you will probably want a single life annuity. However, couples will most likely consider a joint and survivor annuity. There are a couple of key differences between the two.

With a single-life annuity, the only person who will benefit would be the person who takes out the annuity. Once that person dies, benefit payments will stop.

Single life annuities will also typically have a lower benefit amount because they only cover one person, whereas a joint and survivor annuity pays out an income to two annuitants.

Joint and Survivor Annuity Payout Examples

When deciding whether a joint and survivor annuity is right for you, it is important to understand how the payout works. IRS regulations require that a surviving spouse receives between 50% and 100% of the total payments made to the first annuitant during their lifetime. Typically, the amount ends up being 50% or 75%.

Below are a couple of examples of how the payouts would work. For this example, John would be the primary annuitant, and Margie would be the secondary annuitant

75% Payout — John had a monthly payout of $900. Once John passes away, Margie will receive 75% of the benefit amount, which would be $675. However, if Margie passes away first, John will continue to receive his $900 payout until his death.

50% Payout — John had a monthly payout of $900. Once John passes away, Margie will receive 50% of the benefit amount, which would be $450. However, if Margie passes away first, John would continue to receive his $900 payout until his death. 

Tax Treatment of a Joint and Survivor Annuity

When taking out a joint and survivor annuity, the two annuitants are not required to be married. However, the IRS will impose additional regulations.

The secondary annuitant can not be 10 or more years younger than the primary annuitant, or else they are not eligible to receive 100% of the primary annuitant’s benefit upon death. There are no restrictions if the secondary annuitant is older than the primary annuitant. 

Once the primary or secondary annuitant begins receiving payments, the income must be reported on their tax return.

Benefits of a Joint and Survivor Annuity

There are several benefits of using a joint and survivor annuity. The biggest is that it will provide security from outliving your retirement savings. No matter if you choose to retire at 62, 65 or even 70, there is a chance you could live until 90 or older. That means you’d need significant savings to cover your retirement needs. An annuity guarantees you an income for the rest of your life.

However, the biggest benefit of a joint and survivor annuity is the benefit they provide for survivors. Plus, because the payments are spread out over time, the tax liability is also spread out, reducing the tax burden annuitants will face.

Drawbacks of a Joint and Survivor Annuity

Similar to other annuity products, joint and survivor annuities will not benefit younger couples. The benefit amounts will be low, and the fees will be high. Other retirement methods like a 401k or IRA will be much more beneficial. Joint and survivor annuities will be best for someone who is retired or getting close to retirement.

The Bottom Line

A joint and survivor annuity can be a great option if you want additional guaranteed income with your partner during retirement. However, you should research to ensure it’s your best option.

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