What is ‘Years Certain Annuity’
An insurance product that pays the holder a monthly income for a specified number of years. A years certain annuity is similar to other annuities because they are generally used to provide a steady income during retirement, but differ by providing income for a predetermined amount of time regardless of how long the annuitant lives. This differs from a life annuity which provides payouts for the remainder of the annuitant’s life and, in certain cases, the life of the annuitant’s spouse.
Explaining ‘Years Certain Annuity’
A years certain annuity typically involves larger monthly payouts, but this type of annuity is less common than a life annuity. A years certain annuity may be more appealing to individual who will have another source of income during retirement (such as another annuity or other retirement plan). A years certain annuity would be risky if it were the only retirement income because the annuitant could outlive the monthly payment period and be forced to spend the remaining retirement years on a reduced income.
Further Reading
- Financial valuation of guaranteed minimum withdrawal benefits – www.sciencedirect.com [PDF]
- New evidence on the money's worth of individual annuities – pubs.aeaweb.org [PDF]
- Understanding the role of annuities in retirement planning – books.google.com [PDF]
- Developments in decumulation: The role of annuity products in financing retirement – link.springer.com [PDF]
- Rational and behavioral perspectives on the role of annuities in retirement planning – www.nber.org [PDF]
- Financial education and annuities – www.oecd-ilibrary.org [PDF]
- Behavioral obstacles in the annuity market – www.tandfonline.com [PDF]
