Frank is just two months away from retirement. He and his spouse Frances have decided to buy an annuity and are reviewing their options.
Their choices are:
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The high-income choice: Here, they'd buy an annuity that will last Frank's lifetime only, and pay him $1,000 per month, or $12,000 a year. To get this, Frances has to sign a form that will say she has no rights to any payments if Frank dies.
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The middle road: Here, they'd get an annuity guaranteed to last 10 years that will pay Frank $930 a month or $11,160 per year. If Frank dies within the 10-year guarantee period, Frances will get the same monthly payment until that period is over. After that, she will receive no further income.
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The lower-income, high-security option: Here, they'd choose an annuity that will pay Frank $850 per month during his lifetime or $10,200 a year. After Frank dies, the annuity will pay Frances $510 a month or $6,120 a year until she dies.
|
Frank and Frances’ choices |
What Frank receives: |
What Frances receives if Frank dies: |
|
The high-income choice |
$1,000/month for Frank’s lifetime |
No payment |
|
The middle road |
$930/month for 10 years |
$930/month for 10 years |
|
The lower-income, high-security option |
$850/month for Frank’s lifetime |
$510/month until she dies |
They chose the security of a lifetime income for both of them, even though it pays less. They're both in good health, and look forward to enjoying a long and happy retirement together.