Many people are unaware of what a period certain annuity is. However, it’s important to know about this type of annuity because many people use them, which can be a valuable tool for retirement planning. This guide will explain how a period certain annuity works and some advantages and disadvantages that come with it.
What is a Period Certain Annuity
A period certain annuity is a contract that guarantees payments for a specific number of years, typically 5 to 20 years. If the annuitant dies before the policy is over, the payments can be passed to a beneficiary.
Types of Period Certain Annuities
- Single Life Annuity With Period Certain: A life annuity with period certain provides lifetime payments for one person with guaranteed income for a specified number of years.
- Joint Life Annuity With Period Certain: Payments for your lifetime and the lifetime of another person (2 persons) with a minimum guaranteed payment period.
Annuities That Offer Period Certain Payouts
- Immediate Annuities
- Deferred Income Annuities
- Lottery Annuities
- Structured Settlements
- Fixed Annuities
- Fixed Index Annuities
- Variable Annuities
- Two-Tiered Annuities
Pros and Cons of Period Certain Annuities
- You can set the payment schedule. You will know how many payments you and your beneficiary will receive and how much they will be worth.
- The payments will be larger than payments from a straight-life annuity.
- If you live beyond the period certain, the annuity payments stop.
- Period certain payments can be less than the original investment.
- The payout earns little to no interest.
- Owners give up control over their money to the insurance company.
Period Certain Annuity Alternative
Essentially a period certain annuity is paying the annuity owner back their own money over a fixed period of time, with a little bit of interest, around one percent. Instead of giving up control over your savings to the insurance company, do this instead:
- Purchase a deferred annuity that allows an immediate penalty-free withdrawal based on the original investment amount (not the account value).
- For a 10-year period certain annuity, withdrawal 10% each year for ten years. At the end of the tenth year, you’ll have more interest that you can withdrawal in a lump sum than any period certain could provide.
- For a 20-year period certain annuity, withdrawal 5% each year for twenty years. At the end of the tenth year, you’ll have more interest that you can collect in a lump sum than any period certain could provide.
Period Certain Annuity Quote
I’m a licensed financial professional. I’ve sold 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.
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.