It can be said that the biggest benefit of annuities is the offer of regular income for you and your spouse for that remaining part of your life or for a pre-determined period of time. In the light of this, it can be worthwhile to consider the annuity payments based on different annuity types. So given current annuity rates, how much can you collect?
Let us presume a person has a sum of $50,000 to invest in an annuity. He is by now 70 years of age with a remaining actuarial life expectancy ranging of 16 years (50% of those now age 70 will pass before 16 years and 50% in more than 16 years).
In the event that person wants a life annuity, an insurance company will provide a monthly annuity payment with regard to the investor, taking into account gender, age, amount of investment, and current annuity rates. The assumption may be the person will die 16 years hence and so they calculate the size of monthly payments that will be due. Though the insurance company will maintain reserves to account for the investor living longer than 16 years, they also get to keep the investors money if he happens to drop dead in 2 years!
Let us think about the various factors that impact payments, factors other than annuity rates:
Age - With a $50,000 deposit at age 70, the monthly annuity installment is $385 per month. However, if our investors waits to make his investment to age 80 when his life expectancy life expectancy is 11 years the insurance company would pay out $554 monthly since they will be statistically making payments for fewer months.
Gender - Statistics have frequently shown that women outlive men and a 70-year-old woman may have a remaining life expectancy approaching 20 years. This means monthly annuity repayments will be more for the insurance company with a woman than for a man. Therefore, women of the same age will receive a small payment than a man, but receive more payments.
Survivorship option - It is suggested that a wife and husband may choose a survivorship contract by which annuity payments will be made right up and until the surviving spouse dies. Assuming that both the spouses are the same age (70 years), the annuity company would pay $318 monthly, considering that statistically, as stated earlier, the wife will live more years than her husband. The annuity payment will remain unaffected after the death of the first spouse.
The biggest factor however affecting the payment is the current interest rate environment and how it impacts annuity rates. Generally, rates on treasury securities track well with what insurance companies have paid on their immediate annuities. So if the rate on the 10-year treasury jumps from 2% to 4%, you can expect the same to happen with the annuity rates used by insurers to quote their annuity payments.
Immediate annuities could possibly be defined as the remittance of a single premium to a annuity company to enjoy regular periodic installments throughout a pre-determined number of years. But, as soon as annuity payments commence, the annuity can not be surrendered for value. Pertaining to tax purposes, the income is in part treated by the IRS as ordinary income and the remaining as return of capital. Because only part of the annuity payment is taxable, any given quote of annuity rates is actually better than the nominal rate because of the tax benefit. Look up annuity rates here.