Resource Center
Managing Retirement Income | Payout Options
You can take annuity income in the way that suits you best.

When you buy an immediate annuity, or when you’re ready to convert your deferred annuity into income, you will have to choose the way in which that income will be paid. Every contract offers a range of choices that provide different benefits and different amounts of income, and cover different periods of time.

What Your Options Are
While some contracts offer more income options than others, or use different language to describe your choices, you generally have six or seven alternatives, each with its distinctive characteristics. You can get a good sense of how they differ by analyzing the information in the chart.

Payout option How payout amount is determined How long payout lasts Pros Cons
Life annuity Based on contract value, your age when payments begin, and interest rate (if fixed income) or investment experience and AIR (if variable income) Income lasts for your lifetime Income as long as you live

The highest amount of income available in a lifetime payment plan		 When you die the payments stop, even if that occurs shortly after your payout begins, which means you may not get back the full value of your contract
Life income with period, or term, certain Based on contract value, your age when payments begin, interest rate (if fixed income) or investment experience and AIR (if variable income), and the length of the guaranteed term certain (typically from 5 to 20 years) Income lasts for your lifetime or at least as long as the term you select if you die sooner Income as long as you live

Beneficiary continues to get income for remaining term certain if you die before it expires		 Income amount will be less than with life annuity
Life income with refund payout Based on contract value, your age when payments begin, interest rate (if fixed income) or investment experience and AIR (if variable income), and the refund guarantee Income lasts for your lifetime or at least until all of the refundable value of the contract has been paid to your beneficiary after your death Income as long as you live

Your beneficiary continues to get income if you die before the contract value has been paid out 		Income amount will be less than with life annuity and probably than life with period certain (depending on length of the period certain)
Joint and survivor life annuity Based on contract value, your age and the age of your joint annuitant when payments begin, and interest rate (if fixed income) or investment experience and AIR (if variable income) Income lasts for your lifetime and the lifetime of your joint annuitant Income as long as you and your joint annuitant live

Flexibility in setting amount of second annuitant’s income		 Each payment less than with single life alternatives (though can last longer)

No payment to beneficiary upon death of both annuitants
Joint and survivor annuity with period certain Based on contract value, your age and the age of your joint annuitant when payments begin, interest rate (if fixed income) or investment experience and AIR (if variable income), and the length of the guarantee (typically from 5 to 20 years) Income lasts for your lifetime and your joint annuitant’s lifetime or at least as long as the term selected if you both die sooner Income as long as you and your joint annuitant live

Beneficiary continues to get income for remaining term certain if you and your joint annuitant die		 Income amount will be less than with other joint and survivor annuity
Fixed amount (available only with a fixed income payout) You say how much income you want The time the payments will last is set based on the contract value and interest at the time payments begin Potentially the highest amount of income (but the larger the payment the shorter the time frame)

May be commutable		 No lifetime guarantee, so you may outlive your income, since all of your assets will be gone at end of the term
Fixed period Payment amount is determined by the length of time you choose to receive income, the contract value, interest rate (if fixed income) or investment experience and AIR (if variable income) You choose how long you want the payments to last You know how long income will be coming in

May be commutable		 No lifetime guarantee, so you may outlive your income, since all of your assets will be gone at end of the term
Annuities at a Glance
Variable annuities were introduced in 1952—as the College Retirement Equity Fund (CREF) by the Teacher’s Insurance and Annuity Association (TIAA)—to provide the twin benefits of lifetime income and the inflation-beating power of equity investments.

Though there have been enormous changes in variable annuities since they first appeared—including how readily available these long-term plans have become—their underlying purpose hasn’t changed: It’s still to provide a source of lifetime income that can outrun the eroding effects of inflation.

© 1999/2000 NAVA, National Association for Variable Annuities. All rights reserved.
Terms and Conditions

Accumulation Period:
The period when the owner of a deferred annuity makes payments into the contract and accumulates assets.
Accumulation Phase:
The period when the owner of a deferred annuity makes payments into the contract and accumulates assets.
Accumulation Units:
The shares of ownership you have in a variable annuity investment portfolio during the period you are saving for retirement. As you pay additional premiums, you buy additional units.
Accumulation Value:
The sum of permiums and earnings, minus charges under the contract and any withdrawals.
Annual Contract Fee:
An annual fee, typically $30 or $40, paid to the insurance comapny for administering the contract. The fee often is waived for contracts with higher account values.
Annuitant:
The person who receives income from an annuity. The annuitant’s life expectancy is used to figure the initial income amount the annuity pays.
Annuitization:
The election to start receiving regular payments from annuity. The annuity is said to be annuitized.
Annuitize:
To convert the accumulated value of an annuity into a stream of income, either for one or more lifetimes or a specific period of time.
Annuity:
A series of periodic payments.
Annuity Commencement Date:
The date income payments start. Also known as the annuity starting date and the maturity date.
Annuity Contract:
A legal agreement between you and an insurance company, sometimes called an annuity company.
Annuity Income Payments:
(or payouts) The regular payments received as a result of the election to annuitize an annuity contract.
Annuity Units:
The number of units you own in a variable annuity investment portfolio during the period you are taking income. The number of your annuity units is fixed, and does not change.
Assumed Interest Rate:
(AIR) The rate of interest an annuity provider uses in determining the amount of each variable annuity income payment. Also known as the benchmark rate or the hurdle rate.
Annuity Purchase Rate:
The cost of an annuity based on insurance company tables, which take into account various factors such as your age and gender.
Asset Allocation Programs:
Variable annuity asset allocation programs make recommendations as to which subaccounts to invest in, given a scontract owner's financial goals and the prevailing market conditions. Purchase payments are then allocated to the subaccounts in selected percentages. Portfolio rebalancing programs 'rebalance' the amount of money allocated to each subaccount as the target percentages move out of alignment over time because some subaccounts grow faster than others. Some asset allocation programs regularly review an investor's financial goals and market conditions and make correspnding changes in the subaccounts the owner invests in. Other programs may do so only when the owner experiences a major change in his or her financial situation.
Beneficiary:
The person typically designated under the contract to receive any payments that may be due upon the death of the owner or the annuitant.
Cash-Refund Annuity:
If the annuitant dies before the total of annuity payments received equals the premiums paid for the annuity, a lump sum equal to the difference between the premiums and the sum of the annuity payments already made is paid to the beneficiary.
Cash-Surrender Value:
The amount that can be withdrawn from the contract after deduction of any surrender charge. It is equal to the contract value minus any surrender charge. Also known as cas value.
Commutable Contract:
An annuity contract that allows you to terminate an annuitization agreement that is paying you income on a fixed period or fixed percentage basis.
Commutation:
A process provided under some term certain annuities that allows the annuitant to take some or all of the value of the undistributed annuity payments.
Contract Date:
Date contract becomes effective.
Contract Owner:
The person or couple who pays premiums under the contract and has the rights under the contract, such as making withdrawals, surrendering the contract, and changing the beneficiary or other terms of the contract.
Contract Value:
The combined total of your principal and portfolio earnings in a variable annuity, up to and including the date on which you annuitize. Also known as accumulated value.
Death Benefit:
Payment made to beneficiary upon death of contract owner and/or annuitant.
Deferred Annuity:
An annuity contract that you purchase either with a single premium or with periodic payments to help save for retirement. With a deferred annuity, you can choose the point at which you convert the accumulated principal and earnings in your contract to a stream of income.
Dollar-Cost Averaging:
Investing a fixed amount of money at set intervals with the goal of purchasing more units under a contractat low values and fewer units at high values. Variable annuity dollar-cost averaging programs involve allocating a purchase payment to one investment option, such as the money market fund or fixed option, and then having that payment periodically transferred out of that account to other subaccounts.
Enhanced Death Benefit:
A death benefit that goes beyond the guaranteed minimum death benefit by locking in investment gains every few years or every year, or paying a minimum stated interest rate on purchase payments.
Equity Indexed Annuity:
Annuity with payout based on a market index. Also known as an indexed annuity.
Expense Ratio:
The amount, as a percentage of your total annuity account value, that you pay annually for operating, management, and insurance expenses.
Fixed Account:
Part of the company's general account to which a variable annuity contract owner may allocate all or part of premium payments. Also known as fixed investment option.
Fixed Annuity:
An annuity contract that guarantees you will earn a stated rate of interest during the accumulation phase of a deferred annuity, and that when you annuitize, you will receive a fixed amount of income on a regular schedule.
Flexible Premium Contract:
A contract that allows payments to be made at any time after the initial purchase payment.
Free-look Period:
A certain number of days after receipt of the contract during which an annuity contract purchaser may revokde the purchase of the contract.
General Account:
All assets of the insurance company not allocated to seperate accounts.
Guaranteed Death Benefit:
The assurance that your beneficiaries will receive at least the amount you put into the annuity and typically your locked-in earnings if you die before beginning to take income. One of the insurance benefits that annuities provide.
Guaranteed Living Benefit:
Protection during the life of the owner or annuitant against investment risks under variable annuity contracts that guarantee the level of account values or annuity payments. There are two types-guaranteed minimum income benefits and guaranteed minimum account value benefits.
Guarantee Period:
Period during which the level of interest credited under a fixed annuity is guaranteed.
Guaranteed Minimum Account Value Benefit:
A benefit guarantee that promises that, at specified periods, the account value will not be less than the purchase payments, sometimes with a minimum rate of interest.
Guarantee Minimum Death Benefit:
A basic death benefit offered under virtually all variable annuity contracts. Payment is equal to the greater of (1) the contract value or (2) premium payments less prior withdrawals, and is made to the beneficiary upon the death of the owner and/or annuitant. Many variable annuity contracts now offer enhanced death benefits.
Guaranteed Minimum Income Benefit:
A benefit guarantee that ensures under certain conditions the owner may annuitize the contract based on the greater of (1) actual account value or (2) a 'payout base' equal to premiums credited with some interest rate or the maximum anniversary value of the account value prior to annuitization.
Immediate Annuity:
An annuity contract that you buy with a lump sum and begin to receive income from within a short period, always less than 13 months. An immediate annuity can be either fixed or variable.
Income Options:
The various methods of receiving annuity income that an annuity contract offers. You may choose from among them the one that suits your situation best. Typically, there are six or more choices, many guaranteeing income for life.
Installment-refund Annuity:
If the annuitant dies before the total of the annuity payents received equals the premiums paid for the annuity, the annuity payments will continue to the beneficiary until the total of the annuity payments equals the premiums.
Insurance Charges:
Cover administrative charges and the cost of the mortality and expense (M&E) risk.
Investment Management Fee:
The fee paid in connection with the professional management of the assets of the investment funds underlying variable annuities.
Issuer:
The insurance company that issues the annuity contract.
Investment Portfolio:
A collection of individual investments chosen by a professional manager to produce a clearly defined investment objective. Portfolios, which are structured the same way as open-end mutual funds, are offered in a variable annuity contract and are available to people who purchase the contract. They are also called subaccounts or investment accounts.
Joint And Survivor Annuity:
A life annuity in which there are two annuitants, known as joint annuitants. Annuity payments continue as long as either annuitant is alive.
Life Annuity:
Annuity payments distributed by the insurance com-pany for the life of the annuitant.
Life Annuity With Installments Certain:
If the annuitant dies before a certain number of payments have been made, the remaining num-ber of payments is made to the beneficiary.
Life Annuity With Period Certain:
A type of refund annuity in which if the annuitant dies before payments have been made for some minimum number of years, payments will continue until the end of the period and are received by the beneficiary.
Living Benefits:
Guarantees that provide principal protection by guaranteeing the level of account values or annuity payments.
Market Value Adjustment:
This feature, which is included in some annuity contracts, imposes an adjustment, or fee, if you surrender your fixed annuity or the fixed account of your variable annuity. The adjustment offsets any losses the insurance company might incur in liquidating assets to pay the amount due to you.
Mortality And Expense Risk Charge:
(M&E) A fee that pays for the insurance guarantees, including the death benefit; the guaranteed ability to choose a payout option that can provide an income that cannot be outlived at rates set in the contract at the time of pur-chase; and the guarantee that the insurance charges will not increase.
Non-Qualified Annuity:
An annuity contract you buy individually rather than as part of an employer-sponsored qualified retirement plan. You pay the premium with post-tax dollars. With a deferred nonqualified annuity, your principal grows tax-deferred.
No-Surrender Charge Annuity:
An annuity contract that does not have a surrender charge.
Partial Surrender:
A withdrawal of an amount less than the entire cash surrender value of the contract.
Payment Interval:
The period between annuity payments, whether a month, a calendar quarter, or a year.
Payout Phase or Payout Period:
The period during which the money accumulated in a deferred annuity contract, or the purchase payment for an immediate annuity, is paid out as income payments.
Portfolio Rebalancing:
A type of asset allocation program that periodically reallocates contract assets among fixed and variable investment options under a variable annuity contract in specified proportion.
Premiums:
The amount you pay to buy an annuity or any other insurance product. With a single premium annuity you pay just once, but with other types you pay an initial premium and then make additional premium payments.
Principal:
The amount of money you use to purchase an annuity, bond, mutual fund, stock or other investment. The principal is the base on which your earnings accumulate.
Proprietary Portfolios:
The investment portfolios offered within a variable annuity that are run by the insurance company’s investment managers. The annuity may also offer portfolios run by managers working for another financial institution, such as a mutual fund.
Purchase Rates:
The rate for converting the contract value to annuity income payments; rates are set in the contract.
Pure Life Annuity:
Annuity payments stop when the annuitant dies. Also known as a straight life annuity.
Qualified Annuity:
An annuity contract you buy with pre-tax dollars as part of an employer-sponsored qualified retirement plan.
Qualified Plan:
An annuity used in connection with a tax-deferred retirement plan such as a 401(k) plan.
Ratchet Guaranteed Minimum Death Benefit:
A type of death benefit that is equal to the greater of (a) the contract value, (b) pre-mium payments less prior withdrawals, or (c) the contract value on a specified prior date.
Rising Floor Guaranteed Minimum Death Benefit:
A type of death benefit that is equal to the greater of (a) contract value or (b) pre-mium payments less prior withdrawals increased annually at a spec-ified rate of interest.
Rollover:
An IRA or qualified retirement plan that you move from one trustee to another is known as a rollover. You can roll over any qualified plan, including a qualified annuity, into an IRA, preserving its tax-deferred status.
Separate Account:
The account established by the insurance company to hold the money you contribute to your variable annuity. It is separate from the company’s general account, where fixed annuity premiums are deposited. Money in the separate account is not available to the company’s creditors.
Single Premium Annuity:
This type of annuity contract is purchased with a one-time payment. All immediate annuities and some deferred nonqualified annuities are in this category.
Stepped-Up Death Benefit:
A death benefit that guarantees pay-ments with interest or that is increased regularly to protect invest-ment gains.
Subaccount:
The investment portfolios offered in variable annuity contracts are sometimes referred to as sub- accounts. The terms refers to their position as accounts held within the separate account of the insurance company offering the variable annuity.
Surrender Charge:
Cost to contract owner for withdrawals from the contract before the end of the surrender charge period. The surren-der charge period typically is five to seven years.
Systematic Withdrawal Plans:
Allows a variable annuity contract owner to have a check for a specified amount sent monthly or quar-terly as a partial withdrawal from the annuity contract value to the owner or another designated person prior to the annuity starting date. Many annuity contracts permit 10% or 15% of contract value to be withdrawn annually without a surrender charge. Unlike life-time annuity payments, systematic withdrawals can continue only as long as the contract cash value is not exhausted. But these programs can offer more flexibility than life annuity payments, since systemat-ic withdrawal payments can be reduced, increased, or stopped. The tax treatment of systematic withdrawals differs from that of annuity payments.
Term Certain Annuity:
Annuity with income payments over a fixed number of years.
Transfer:
The movement of assets from one subaccount to another. Transfer fee—Charge for a transfer of assets.
Underlying Investments:
The stocks, bonds, cash equivalents or other investments purchased by a variable annuity portfolio or mutual fund with the money you and other people allocate to that portfolio or fund.
Unit Value:
The dollar value of a single accumulation or annuity unit, which changes constantly to reflect the current combined total value of the underlying investments in your investment portfolios, minus expenses.
Variable Annuity:
An annuity contract that allows you to allocate your premium among a number of investment portfolios. Your contract value, which can fluctuate in the short term, reflects the performance of the underlying investments held in those portfolios, minus the contract expenses.
Withdrawal:
Distribution from an annuity other than scheduled annuity payments.
Withdrawal Fee:
An administrative fee charged on withdrawals.