An annuity payout from your retirement plan basically provides a fixed income to you over your lifetime or a fixed period of years. Here are the most common annuity payouts:
IMPORTANT NOTE: Keep in mind that an annuity based on your life expectancy ceases when you die. For example, assume you are single, have a lump-sum equivalent of $200,000 in a qualified retirement plan, and use it to purchase a single life annuity. You receive payments for one year (say $21,000) and die. Your annuity payments cease, even though you have received only $21,000 of the value of your accrued benefit. Your heirs will receive no further monies. On the other hand, if you outlive your life expectancy, you'll come out ahead, because you will have received more than the $200,000 lump-sum equivalent. Similarly, if you elect a joint and survivor annuity and both you and your beneficiary die, your heirs will receive no further monies.
Example: Suppose you retire and choose a ten-year period certain and life annuity. You collect $911 a month (see table below) for three years and then die. Your beneficiary will then collect $911 a month for seven additional years (the remainder of the original ten-year period). However, if you live beyond the ten-year certain period, you will continue to collect the $911 a month annuity for as long as you live. Then at your death, your beneficiary will not receive any payments, since you outlived the ten-year certain period.
If you are eligible for benefits from a defined benefit plan, your employer may offer you a Social Security leveling option. Say you are over age 55, have enough years of service to qualify for pension benefits, and you'd like to retire before age 62. You'll need the income from both Social Security and your pension to make it possible, but Social Security benefits can't start before age 62.
If you elect this leveling option, your monthly fixed income from your employer plan will include the projected benefit from Social Security. Once Social Security payments begin at age 62, your monthly pension benefit from your employer plan is reduced by the amount of the Social Security payment. The end result is you have a level income for your lifetime. But the level payment will be less (perhaps much less) than if you waited to age 65 or later to retire. You may be able to choose this option in combination with any of the above mentioned annuity forms.
Look at the table below to see how the various options compare*:
Form of Payment
Plan Benefit*
Single Life Annuity
$1,000
Joint and Survivor:
50%
$ 896
66 2/3%
$ 866
75%
$ 851
100%
$ 811
Period Certain and Life:
5-Year
$ 973
10-Year
$ 911
15-Year
$ 842
20-Year
$ 780
Social Security Leveling Benefits Paid from Your Employer's Plan:
Pre-62
$1,519**
Post-62
$ 619
* Assumes the employee is age 65 and spouse is age 62 when annuity payments commence. Payments under your plan in your personal circumstance may be more or less.
** Assumes a Social Security benefit of $900 per month payable beginning at age 62.
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