How Long Does An Annuity Last?

Shawn Plummer

CEO, The Annuity Expert

Annuities are not the most glamorous of investments, but they offer a dependable income stream for retirees. Among the many questions circling annuities, the most common is, “How long does an annuity last?” It’s a simple question with a multifaceted answer rooted in the complex workings of annuities. Let’s take a deep dive into the world of annuities, breaking down their lifespans and unraveling key terms like surrender period, annuitization, and guaranteed lifetime withdrawals.

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Understanding the Lifespan of an Annuity

An annuity’s lifespan primarily depends on the type of annuity contract one has chosen. With some, you’re guaranteed payments for a specific period, while others promise an income stream for as long as you live.

For instance, term-certain annuities ensure payments for a pre-specified number of years. However, lifetime annuities promise what their name implies – an income for the remainder of the annuitant’s life. So, the answer to the question, “How long does an annuity last?” largely hinges on the specific type of annuity in question.

How Long Does An Annuity Last

The Surrender Period and Its Role in Annuity Lifespan

“Surrender period” is a crucial term in annuity discussions. It refers to when the annuitant may incur a surrender charge for withdrawing funds from the annuity beyond the free withdrawal limit. Depending on the specific contract, this period can range from 2 to 14 years.

You’ll likely pay a penalty if you withdraw your money during the surrender period. Considering this period while planning your annuity investment is vital to ensure it aligns with your financial goals and liquidity needs.

When the surrender period has passed, you can withdraw funds at will without incurring any fees.

How Long Does Annuity Last

Factors Affecting How Long Money Stays In An Annuity

Type of Annuity

The type of annuity selected will affect how long the money stays in the account. With an immediate annuity, the money will be paid out immediately, and the contract will end once all payments have been made. With a deferred annuity, the money will stay in the account until the payout phase begins.

Age at Purchase

The age at which an annuity is purchased significantly determines how long the money stays in the account. The younger the individual is at the time of purchase, the longer the money will stay in the account, and the larger the payout will be when the annuity starts paying out.

Surrender Charges

Many annuities have surrender charges for withdrawing money from the account before a specified period. Depending on the contract, these charges can range from a few percent to 10% of the account balance. Therefore, if an individual wants to withdraw money before the surrender period ends, they may face substantial fees.

Payout Options

The payout options chosen will also impact how long the money stays in the annuity account. For example, if an individual selects a life-only option, the payout will continue for their lifetime, and the money will stay in the account until they pass away. However, if a joint-and-survivor option is selected, the payout will continue until both individuals pass away, resulting in a more extended payout period.

Annuitization: Converting Your Annuity into a Steady Income Stream

Next up on the roster of basic annuity terms is “annuitization.” This process entails converting your annuity into a stream of periodic payments. It usually kicks off after the accumulation phase, where you’ve made your premium payments and your annuity has grown.

Annuitization can often mean a lifetime of guaranteed income, but it’s a one-way street. Once you choose to annuitize, you typically cannot revert your annuity into a lump sum. It’s a crucial decision, impacting how long and in what way your annuity will last.

Guaranteed Lifetime Withdrawals: Ensuring Income for Life

Lastly, let’s explore “guaranteed lifetime withdrawals,” a feature that promises a specific withdrawal amount for the remainder of the annuitant’s life. This provision is usually found in variable annuities with living benefit riders and is designed to provide a reliable income stream, regardless of market conditions.

Unlike annuitization, which converts the entire annuity into payments, the annuitant can withdraw a specific amount annually, allowing the rest to continue growing.

How Long Does An Annuity Last For

Next Steps

In conclusion, the duration of an annuity can vary greatly, influenced by factors like the type of annuity, the surrender period, the choice to annuitize, and the inclusion of features like guaranteed lifetime withdrawals. These complexities highlight the importance of carefully considering one’s financial goals, retirement plans, and risk tolerance when choosing an annuity. As with any investment, the more knowledge you have, the better equipped you are to make decisions that will serve you well in the long run.

How Long Will An Annuity Last

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Frequently Asked Questions

Do fixed and variable annuities last for different periods?

Yes, fixed and variable annuities are available in a range of durations. Fixed annuities typically have longer durations than variable annuities, which can be as short as one year. Choosing an annuity with a longer duration is often considered beneficial for those looking to avoid inflation risk.

Once annuitization happens, can I add more money to my annuity?

No additional money can be added to the policy once an annuity is annuitized. However, some annuities may offer riders that allow more money to be withdrawn from the contract at a given time. Understanding what these riders entail is essential before deciding on an annuity.

Does the question of how long does an annuity last affect surrender charges?

Yes, the duration of an annuity affects surrender charges. Generally, longer-term annuities tend to carry higher surrender charges than shorter-term contracts. Before purchasing an annuity, it is essential to understand the associated surrender charges and how they may impact your finances should you decide to terminate the contract before its maturity date.

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Shawn Plummer

CEO, The Annuity Expert

I’m a licensed financial professional focusing on annuities and insurance for more than a decade. My former role was training financial advisors, including for a Fortune Global 500 insurance company. I’ve been featured in Time Magazine, Yahoo! Finance, MSN, SmartAsset, Entrepreneur, Bloomberg, The Simple Dollar, U.S. News and World Report, and Women’s Health Magazine.

The Annuity Expert is an online insurance agency servicing consumers across the United States. My goal is to help you take the guesswork out of retirement planning or find the best insurance coverage at the cheapest rates for you. 

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