What Is a Joint and Survivor Annuity?

How you’ll cover your income in retirement is a puzzle you’ll typically begin solving long before retirement approaches. However, your retirement could last anywhere from a few years to 30 years (or more) depending on your health. If you’re fortunate to be in good health, it’s not uncommon to worry about the possibility that you could outlive your savings. This is where an annuity can help.  

If you’re planning for yourself and a partner, a joint and survivor annuity is one way to make sure you’re both covered for as long as you both live. We’ll help you understand what a joint and survivor annuity is and how it works so you can see how it might work with other streams of retirement income.  

What is a joint and survivor annuity? 

An annuity is an insurance product that’s designed to provide regular income payments to an annuitant (the owner of an annuity), typically for as long as the individual lives. With most annuities, when the annuitant dies, payments stop. However, with a joint and survivor annuity, if one of the annuitants dies, the surviving annuitant would continue to receive a payment as long as he or she lives. Though joint and survivor annuities are often used by married couples, the two people named on a joint and survivor annuity do not need to be married.  

How joint and survivor annuities work 

When setting up any annuity, you’ll determine how much money you want to put toward the annuity as well as when and how you’ll receive payments. (Factors like your gender, age and the current economic climate will also come into play.)  

You and the other annuitant will receive a payment (usually made payable to one of you) on the date established in the terms of the annuity. You’ll continue to receive that payment as long as you’re both alive. Once one of you dies, payments may change, depending on the type of annuity you select.  

Lump-sum payout joint and survivor annuity 

With a lump-sum payout, when one annuitant dies, the other annuitant stops receiving payments but instead receives a one-time payment so long as they’ve reached the permitted age (usually 59½).  

100 percent joint and survivor annuity 

When one person dies, the other person will continue to receive a payment of the same amount as when both people were living.  

2/3 or 1/2 joint life annuities 

With a 2/3 joint and survivor annuity, when one person dies, the other person would continue to receive a payment in the amount of 2/3 the original payment amount. A 1/2 joint and survivor works similarly, but rather than 2/3 the original payment amount, the surviving person receives half the original payment amount.  

Do you pay taxes on a joint and survivor annuity?  

You’ll likely owe some tax on a joint and survivor annuity, but the way taxes work will depend on how you fund the annuity.  

If you fund your annuity with qualified tax dollars (such as funds from an IRA), you will not be taxed until you begin taking payments. At that point, payments will be taxed at your regular income rate. If you fund the annuity with money that has already been taxed, you will not have to pay tax again on that money, but you will owe taxes on any growth in the annuity when you receive payments. 

This is where some strategy comes in: Once you’re in retirement, strategically making withdrawals from different sources can help you manage the impact of taxes. This is a key area where a Northwestern Mutual financial advisor can help you build a plan that uses multiple financial options, including annuities. Such a plan is designed to generate guaranteed income to last as long as you live while also including flexibility—which can help you manage the impact of taxes. 

What happens if you outlive your annuity? 

One of the major benefits of an annuity is that it generally pays out for the rest of your life, meaning with an annuity, you should never outlive the payments. The benefit of a joint and survivor annuity is that even if you are not the primary annuitant and your partner dies, you would continue to receive some kind of payment. Usually joint and survivor annuity payments don’t stop completely until both of the annuitants die.   

How does a joint and survivor annuity compare to other annuities?  

Here are some of the major differences between a joint and survivor annuity and other types of annuities.  

Joint and survivor annuity vs. single life annuity 

A single life annuity is designed to cover one person. With a single life annuity, one person will receive monthly payments; once that person dies, the payments typically stop. A spouse (or partner) would not receive any payments after that point.  

It is possible, however, to put a “period certain” on a single life annuity, which means that payments would continue for a certain period of time even if the annuitant dies before that point. If you’re looking for payments to continue even after the annuitant dies, you also might look into a joint life annuity.  

Joint and survivor annuity vs. joint life (with annuitant) annuity 

Like a joint and survivor annuity, a joint life (with annuitant) annuity covers two people. However, with a joint life annuity, you can designate who the primary annuitant is and who the secondary annuitant is. If the primary annuitant dies first, the secondary annuitant would receive a reduced portion of the original payment. However, if the secondary annuitant dies, the primary annuitant would continue to receive the full payment until their death. 

Pros and cons of joint and survivor annuities 

Annuities can be beneficial, but there are downsides to them as well.  

What are the benefits of joint and survivor annuities?  

As with any annuity, a joint and survivor annuity can provide helpful assurance that two people will have regular income for the rest of their lives. It can also be a great way to guarantee that a spouse will continue to receive income after the death of their partner.  

A joint and survivor annuity can also be a helpful supplement to a life insurance policy. If one annuitant has a larger life insurance policy than the other, you may want to consider establishing a primary and secondary annuitant.  

Say, for example, one spouse carries a $1 million permanent life insurance policy, and one carries $500,000. If the spouse insured for $1 million dies, the surviving spouse might not need as much income after receiving that death claim. However, if the spouse carrying a $500,000 policy dies, the surviving spouse may want some additional income to count on.  

What are the disadvantages of joint and survivor annuities?  

Because a joint and survivor annuity takes into account the future payments to a surviving person, a joint and survivor annuity is likely to have lower monthly payments than other annuities, such as a single life annuity. And as with any annuity, there’s always the risk that you and your partner would die before you get to take advantage of payments.  

Should you consider a joint and survivor annuity?  

It can be difficult to predict how much you’ll need in retirement, because no one knows for sure how long they will live. However, if you and your partner are building a plan to create income in retirement, a joint and survivor annuity could be an option worth exploring.  

A Northwestern Mutual financial advisor can help you build a plan to generate income in retirement that uses a range of financial options, including an annuity. Such a plan can help you feel more confident that you’re positioned to handle common risks to your retirement income, including the potential that you live a very long life. 

All guarantees in annuities are backed solely by the claims-paying ability of the issuer.  

Withdrawals from annuities may be subject to ordinary income tax, a 10% IRS early withdrawal penalty if taken before age 59½, and contractual withdrawal charges.