How Does a Joint and Survivor Annuity Work?

A joint and survivor annuity provides a reliable retirement income for couples.
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Annuities are the duck-billed platypus of the investment world, an ungainly creature that appears to be bolted together from spare parts. It's essentially a life insurance contract, but one that's been turned 180 degrees from its original purpose. Instead of paying out a lump sum when you die, it provides you with an income as long as you live. In the case of a joint and survivor annuity, it will provide a retirement income for the lifetimes of two people.

Annuity Basics

Annuities essentially consist of an investment product wrapped in an insurance contract. The investment can be the insurance company's own investment pool, in which case the proceeds are often guaranteed. It can also be a conventional product such as mutual funds, which can give greater or lesser yields depending on the markets. Annuity companies often support these by offering a guaranteed minimum return, even if markets are down. The annuity can be purchased with a lump sum, such as a pension-fund payout, or by paying premiums into the annuity for a period of years. Eventually it annuitizes, meaning you begin to draw an income from it.


You can start drawing an income from your annuity at any time, although if you're younger than 59-1/2 at the time you'll pay an extra 10 percent penalty on those funds at tax time. You can take the annuity's payout as a lump sum, although that's relatively uncommon. More often, it's taken as regular monthly or quarterly payments. There are several payment terms available. Some annuities pay until death, while others pay to a specific age or for a specific period. Joint and last survivor annuities pay for as long as the second annuitant survives.

Joint and Last Survivor

Remember, an annuity is a life insurance product. With insurance, the company is calculating the risk of your death. With an annuity, it's calculating the risk of your survival. The amount of investment capital you've accumulated must pay for your retirement income until the death of the second named person. Women live longer than men, so if the couple consists of an older man and a younger woman, the company could be making payments for decades. A joint and last survivor contract will usually pay less than other types of annuities, because the company is potentially on the hook for so much longer.

Pros and Cons

There are two primary disadvantages to annuities as a retirement-planning vehicle. First, because the costs of annuities include broker commissions and cost of insurance as well as investment costs, their fees are higher than for other investments. Second, in part because of those fees, returns tend to be lower than those of other investments. This means you have a smaller amount of capital to retire on, as well as smaller payments from the capital. However, the payments are guaranteed and will last as long as you do, and that certainty is also valuable. A joint and last survivor annuity can be an excellent complement to more conventional retirement investments.

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