Annuity Settlement Options

Annuity settlement options explained

Annuity settlement options can be confusing and a little tricky. Many individuals have bought annuities of all kinds for the benefit of deferring taxes.Many people in retirement decide that it is time to cash in and contact structured settlement annuity companies  to take an annuity buyout for their structured settlement.

Here are some things you should consider before you decide on your annuity settlement options.The most common annuity settlement options people go for is annually  to take incremental payments over a period of time that you choose which may even be for your lifetime.Annuity payments come monthly,bi-annually or once yearly in exchange for surrendering your annuity to the annuity insurance company.Your annuity options usually include Lifetime Income,Period Certain and Period Certain Plus Life

Lifetime Income Option

Imagine you have $150,000 in an annuity and the insurance company figures that, due to your age and gender,they will pay you $1,600 a month for as long as you live. You collect $1,600 the first month, $1,600 the second month and another $1,600 the month after that THEN Oh oh you die unexpectedly in a freak accident.You basically made a wager with the insurance company that you would live long enough to get your $150,000 but you lost. $4,800 is all you got and due to your unfortunate demise they keep the remainder. This doesn't sound like a very good deal now does it?

Period Certain Option

This allows you to take your money out over a time-frame of 5,10,15 or 20 years. The insurance company guarantees to pay every penny of your money plus interest over that time. If as with the example above you are unfortunately killed your beneficiaries would get the remainder of the money in your annuity.So if you were to die unexpectedly at least your family would still get your money.

Period Certain Plus Life Option

With this annuity settlement option the insurance company guarantees to pay you a check each month for a certain period
of time, plus with the life option if you live beyond the agreed term of the annuity you will receive a monthly payment
for the rest of your life.

The options are not easy to choose and the different paths will suit different people. If a person was in a demographic expected to live to an old age may be better with a Lifetime Income whereas Somebody with health problems may be better off with a lump sum settlement or a 5 year Period Certain.Assess your health situation and that of your spouse along with your respective ages, what other sources of income you have and your tax obligations when choosing the right settlement option for you.

For a more flexible option you could elect to go for Systematic Withdrawals. with this option you would get a fixed percentage of the account value or a fixed monthly amount.You would be able to end this option at any time and  withdraw your remaining balance if you so wished.While Systematic Withdrawals may sound more advantageous than annuitization there are two distinct differences to note.

1)With an annuitization as your annuity settlement option, you can lock in a guaranteed monthly income regardless of
the performance of your annuity
2) Annuitization increases the tax deferral period as only a part of each payment is taxed. The IRS considers considers
the other part of your payments a return of principal.

A last option

You may want to consider keeping the annuity letting it grow and not take payments at all. Some annuities  don't allow this as an option and  withdrawals must be made by a certain age.You could opt for a tax-free exchange to another annuity that  may have more lenient withdrawal requirements, but beware of surrender charges on your policy.

Who would have thought receiving a check could be so darn confusing. It's really not as complicated as it sounds though and there are annuity brokers in every town who help people with their annuity settlement options.