Does Annuity Pay out Forever?

If you buy a life annuity, you can expect to receive a fixed chunk of income each month for the rest of your life. As the named beneficiary, you receive a monthly payment based on your investment and your projected lifespan, but the annuity stops making payments when you die. While this revenue stream won’t last forever, it’ll help pay the rent until the end of your days -- long as the company that provides the annuity stays in business.

While you’ll never find an annuity that makes monthly or annual payments forever, choosing to buy into a joint and survivor annuity allows you to pass on your annuity payment to a named beneficiary when you die. You’ll only be able to pass on the annuity payment to the person named as the beneficiary, and your annuity amount is based on a combination of your investment and the projected lifespans of you and your beneficiary.

Another type of annuity offers payment over a fixed term, such as 15 years, for example. This contract is more straightforward, with benefit amounts precisely outlined by the terms of your contract. If you outlive the annuity’s terms, you and the provider simply part ways. If you die before the annuity’s term runs out, the contract isn’t canceled, as with a lifetime annuity, but can be passed to heirs. Your heirs may receive a lump-sum payout of the annuity’s value rather than continuing to receive your benefits.

The idea of buying an annuity that guarantees a monthly payment for your lifetime can be tempting, particularly if you’re worried that you’ll live so long you’ll outlast your savings. While a lifetime annuity can provide income until your death, it also comes with a downside: You’re locked into the interest rates at which you purchase the annuity. Because of this, if you opt for security during a time when crummy interest rates are the norm, you’re committing yourself to a lifetime of low returns.