Joint Life with Last Survivor Annuity

Introduction

When it comes to planning for retirement, one of the most important considerations is ensuring a steady stream of income that will last for the rest of your life. Annuities are a popular financial product that can provide this security, and one type of annuity that is often overlooked is the Joint Life with Last Survivor Annuity. In this article, we will explore what this annuity is, how it works, and why it may be a valuable option for retirees.

What is a Joint Life with Last Survivor Annuity?

A Joint Life with Last Survivor Annuity is a type of annuity that provides income for two individuals, typically a married couple, for as long as either of them is alive. Unlike a single life annuity, which only provides income for one person, a joint life annuity ensures that the surviving spouse continues to receive payments after the death of the first spouse.

For example, let's consider John and Mary, a married couple who purchase a Joint Life with Last Survivor Annuity. They decide that they want to receive a monthly income of $2,000 for the rest of their lives. If John were to pass away first, Mary would continue to receive the $2,000 monthly income until she passes away. This provides a level of financial security for both spouses, knowing that they will have a guaranteed income for as long as either of them is alive.

How Does a Joint Life with Last Survivor Annuity Work?

When purchasing a Joint Life with Last Survivor Annuity, the couple will typically decide on the amount of income they want to receive and the duration of the annuity. The income amount can be fixed or adjusted for inflation, depending on the terms of the annuity contract.

The annuity provider will calculate the monthly income based on several factors, including the age and life expectancy of both spouses, the amount of money invested, and the prevailing interest rates. The annuity payments will continue until the death of the last surviving spouse.

It's important to note that the monthly income from a Joint Life with Last Survivor Annuity is typically lower than that of a single life annuity. This is because the annuity provider is taking on the risk of having to make payments for a longer period of time, as the annuity continues until the death of the last surviving spouse.

Benefits of a Joint Life with Last Survivor Annuity

There are several benefits to consider when choosing a Joint Life with Last Survivor Annuity:

• Financial Security for Both Spouses: By choosing a joint life annuity, both spouses can have peace of mind knowing that they will have a guaranteed income for as long as either of them is alive. This can be especially important for couples who rely on both incomes to cover their living expenses.
• Protection Against Longevity Risk: Longevity risk refers to the risk of outliving your savings. With a joint life annuity, the surviving spouse continues to receive income even after the death of the first spouse, reducing the risk of running out of money in retirement.
• Potential Tax Benefits: In some countries, joint life annuities may offer tax advantages. It's important to consult with a tax professional to understand the specific tax implications in your jurisdiction.

Considerations and Drawbacks

While a Joint Life with Last Survivor Annuity offers many benefits, there are also some considerations and drawbacks to keep in mind:

• Lower Monthly Income: As mentioned earlier, the monthly income from a joint life annuity is typically lower than that of a single life annuity. This is because the annuity provider is taking on the risk of having to make payments for a longer period of time.
• Loss of Control: Once the annuity is purchased, the couple gives up control of the invested funds. This means that they cannot access the lump sum amount or make changes to the annuity contract.
• Survivor Benefit May Not Be Needed: In some cases, one spouse may have a significant pension or other sources of income that can support the surviving spouse. In such situations, a joint life annuity may not be necessary.

Case Study: John and Mary's Retirement Plan

To illustrate the benefits of a Joint Life with Last Survivor Annuity, let's consider John and Mary's retirement plan. John is 65 years old, and Mary is 63 years old. They have saved $500,000 for retirement and want to ensure a steady income for the rest of their lives.

After consulting with a financial advisor, they decide to purchase a Joint Life with Last Survivor Annuity that will provide them with a monthly income of $2,500. The annuity provider calculates that based on their ages and life expectancies, this income can be guaranteed for at least 30 years.

John and Mary are comfortable with the lower monthly income compared to a single life annuity because they prioritize the financial security of both spouses. They also have other investments and savings that can cover any unexpected expenses or emergencies.

Conclusion

A Joint Life with Last Survivor Annuity can be a valuable option for retirees who want to ensure a steady stream of income for both spouses throughout their lifetimes. It provides financial security, protection against longevity risk, and potential tax benefits. However, it's important to carefully consider the lower monthly income and the loss of control over the invested funds. By understanding the benefits and drawbacks, couples can make an informed decision that aligns with their retirement goals and financial situation.