3 common annuity options

When you buy an annuity, you can choose to add a number of options. The more options you add, the higher the costs of your annuity and the lower the payments you receive. Here are 3 of the most common options.

1. Joint-and-last-survivor

If you’re married or have a common-law partner, this option guarantees that the payments from the annuityAnnuity A contract usually sold by life insurance companies that guarantees an income to you or your beneficiary at some time in the future. An annuity is a contract with a life insurance company. When you buy an annuity, you deposit a lump sum of money, and the insurance company agrees to pay you a guaranteed…+ read full definition will continue for as long as either you or your spouse or partner lives. But adding this option may reduce your payments by up to 25%.

2. Guaranteed benefit

If you’re buying a life annuity, this option guarantees you a certain number of payments over a certain period of time, usually 5, 10 or 15 years. That means if you die before the end of the period, your beneficiaries or your estate will continue to receive your payments until the period ends.

3. Indexing

This option automatically increases your annuity payments to keep up with inflation. As prices rise, your monthly income will buy less in the future than it does today. This option can lower your initial annuity payments by as much as 30% to 45%.

Example – Let’s say your annuity pays you $1,000 a month. Assume that over the next 20 years, inflationInflation A rise in the cost of goods and services over a set period of time. This means a dollar can buy fewer goods over time. In most cases, inflation is measured by the Consumer Price Index.+ read full definition rises by 2% every year. In 10 years, your $1000 monthly payments will buy what $820 buys today. And in 20 years, it will buy $673.

How adding options can affect your annuity payments

This chart is based on a hypothetical deposit of $100,000 in a life annuityLife annuity A life annuity gives you a guaranteed regular income for life. Payments usually stop when you die, and no money will go to your estate. You may choose to add an option that allows your spouse, beneficiary or estate to continue to receive your payments after your death.+ read full definition, made at age 65. It shows how your income may drop as you add options.

Annuity option What it’s designed to do Sample monthly annuity payment*
Straight life (no options) Provides you with income for life $536
Life plus 5-year guarantee Provides you with income for life

Guarantees 60 payments to your estateEstate The total sum of money and property you leave behind when you die.+ read full definition if you die within the first 5 years of your contractContract A binding written or verbal agreement that can be enforced by law.+ read full definition

Life plus 10-year guarantee Provides you with income for life

Guarantees 120 payments to your estate if you die within the first 10 years of your contract

Life plus joint-and-last-survivor Provides income for life for you and your spouse

Payments stop after both of you die


*These calculations assume an investmentInvestment An item of value you buy to get income or to grow in value.+ read full definition of $100,000 in non-registered funds, made by a male aged 65.

Choose only the options you need

For example, if you have life insurance or other savings, you and your spouse may not need a joint-and-last-survivor annuity. You may be better off taking a higher income from a single annuity during your lifetime.

Key point

Only add the options that meet your specific needs. Every option you add lowers the payments you receive from your annuity.

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