What Exactly is a Yearly Certain Annuity?
A years-certain annuity is a retirement income contract that, for a certain number of years, provides the holder with a continuous periodic income, usually paid every month. Its purpose, like that of other annuities, is to provide a reliable income in retirement. But what sets a year-certain allowance apart is that it guarantees payment for a defined period regardless of the annuitant’s lifespan.
This is not the same as a life annuity, which pays out for the rest of the annuitant’s life and, in certain situations, the annuitant’s spouse’s life.
There are several names for a years-certain annuity, including “period certain annuity,” “annuity certain,” “fixed period annuity,” “guaranteed term,” and “guaranteed period annuity.”
How an Annuity Works for a Year
An annuity is a financial product that an insurance or financial services organization often offers. The annuitant receives the payments and gets paid a series of installments over time. Retirees often use annuities to establish a reliable source of income.
The person pays the annuity during the accumulation period, and distributions are not yet required. The payments start during the annuitization period, and the duration of the payouts varies based on the kind of annuity that was acquired. Specific grants provide income for a predetermined period, while others cover the beneficiary’s life.
Because a year’s certain annuity pays out over a predetermined length rather than until the annuitant’s death, it usually has more outstanding monthly payments than a life annuity or an instant annuity. Prices are provided to the annuity owner until the conclusion of the term that they have set. The annuitant’s beneficiary will receive the remaining costs until the period’s expiration if the annuitant passes away before it does.
For instance, if the annuity buyer selected a specific assistance with a 10-year term and passed away in the eighth year, the beneficiary would be paid for the next two years. A beneficiary would not be entitled to receive any further payments if the annuitant passed away before the prearranged 10-year period had passed.
Because year-specific annuities are more specialized than life annuities, they are employed less commonly. A year’s specific allowance may span five to thirty years.
Years Certain Annuity: Would You Benefit from It?
Because of their special place in retirement income planning, annuities have a limited “sweet spot” of usefulness. Therefore, someone with another source of income in retirement, such as an additional annuity or another retirement plan, would find it more enticing. If a specific allowance were the sole source of retirement income, it would be dangerous since the annuitant may outlast the payment term and have to live off of a lower income for the remainder of their retirement years.
A year-certain annuity may also be used to bridge a brief duration, such as the time between retirement and the age at which one can begin to collect Social Security payments in full. This usage would result in a larger income payout than a life annuity, which is riskier for the annuity writer since it pays benefits until death.
Conclusion
- A year-certain annuity is often a monthly retirement income payment for a certain period.
- An income provided for a certain period makes a year-specific annuity unique.
- The beneficiary receives payment for the remainder of the time if the annuitant passes away before it does.
