Survivor Annuity Benefits
An annuity is a savings contract with an insurance company. Annuities can be structured many different ways. This also often applies to the payment of benefits. When you retire, you can elect to pay benefits based on a "joint survivor" basis. The joint survivor benefit payment allows you and your spouse to collect an income regardless of who dies first.
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Joint and 100-Percent Survivor
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The joint and 100-percent survivor pays a benefit to the living spouse when the first spouse dies. The income payment stays the same as when both spouses were living. Because of this, income payments are lower than what you would typically find under a reduced-benefit joint and survivor payment option.
Joint and Two-Thirds Survivor
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Joint and two-thirds payment option pays two-thirds of the original benefit when the first spouse dies. This allows the couple to receive a higher benefit when both spouses are living, and a reduced benefit when one spouse dies. This reduced benefit can be beneficial if the remaining spouse needs less income than when both spouses were living. For example, if the original benefit was $1,000/month, and one spouse dies, the two-thirds benefit paid to the remaining spouse would be about $666/month, or roughly two-thirds of the original payment benefit.
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Joint and 50-Percent Survivor
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Joint and 50-percent survivor will pay 50 percent of the original benefit when one spouse dies. If the second spouse does not envision needing a lot of income after the first spouse dies (i.e., she is receiving a life insurance benefit from the first spouse), the 50-percent survivorship benefit may be elected. This will give both spouses more income than what is available under the two-thirds option but less than what is available under the 100-percent option. If the original benefit payment was $1,000/month under this scenario, and one of the spouses dies, the remaining spouse would receive a benefit of $500/month.
Benefit
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The benefit of a joint survivor annuity is that it does not leave the second annuitant "stranded" without an income. These types of annuities are often purchased by a husband and wife. Regardless of which spouse dies first, the annuity will pay a benefit to the other spouse.
Misconceptions
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The joint survivor annuity should not be confused with a joint life annuity. The joint life annuity pays benefits to two or more people. However, when the first annuitant dies, all payments cease. This common misconception could lead to the purchase of the wrong type of annuity. Because payments on these types of annuities are often higher than joint-survivor annuities, it can be tempting to purchase the joint life annuity. However, the mistake will be a costly one when one of the annuitants dies.
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