How Does a Joint and Survivor Annuity Work?

An annuity is a monthly retirement payment guaranteed to last as long as you live. The joint and survivor option – or requirement in some cases – expands that lifetime benefit to continue paying out to your spouse after your death. The terms of a joint and survivor annuity depend on the source of the annuity and the terms you select before the annuity payments start.

How an Annuity Works

At its simplest, an annuity is a lifetime monthly payment, usually paid in retirement. The payment continues for as long as the person receiving the annuity is alive. When the covered retiree dies, the checks stop coming.

A joint and survivor annuity option extends the annuity payment coverage to include the initial individual and a beneficiary, usually the spouse of a retired person. The monthly annuity payments continue until the second person dies -- it does not matter who dies first or second. The idea behind a joint and survivor annuity is that both individuals in a marriage are dependent on the retirement income provided by the annuity. A joint and survivor annuity makes sure either person will continue to receive the payments for as long as they are needed.

Annuity Sources

An annuity can be a type of insurance policy. You can buy one from a life insurance company. The plan is started by paying a lump sum to the insurer and in return, you pay a lump sum to the insurance company and the company pays the guaranteed annuity benefit.

An insurance annuity can be on a single life or the buyer can elect a joint and survivor benefit. Insurance companies differentiate between a deferred annuity where the lump sum earns interest and the payments start at a later date and an immediate annuity – a stream of monthly payments as discussed here. Retirement plans provided by employers, governments or unions may also be in the form of an annuity or give retirees the choice of lump sum and/or annuity payments. The traditional, defined benefit retirement plan is a form of retirement annuity.

Joint and Survivor Annuity Payments

The monthly payment from a joint and survivor annuity will be smaller than a payment from a single life annuity purchased with the same lump sum amount. The amount of survivor benefit will be defined as a percentage of the initial annuity amount. With a 50 percent joint and survivor annuity, the payment will reduce by half when the first person dies.

A 100 percent joint and survivor annuity pays the same monthly amount until the second person dies. The choices available for the joint and survivor option are set by the company providing the retirement annuity.

Qualified Plan Annuities

Employer-sponsored qualified retirement plans are required under tax law to make the joint and survivor annuity the automatic annuity option for married employees when they retire. The joint and survivor coverage may also apply to the ex-spouse of a retiring employee.

Taking a higher payout single life annuity can only be approved with written consent from the spouse or ex-spouse, waiving the annuity survivor coverage. The minimum acceptable survivor payment under a qualified retirement annuity plan is a 50 percent joint and survivor payment.

If you have questions or concerns about joint and survivor annuities, consult a financial industry professional for advice.