Navy Mutual annuities
Annuity Payout Options
Unlike other assets, an annuity contracts offers the unique ability to create a guaranteed stream of lifelong income that cannot be outlived. However, there are distribution options that can be customized to create a bridge of income for a temporary period of time or adapt to unexpected lump-sum distribution needs as well.
With a Navy Mutual annuity, you can elect to receive income using any of these payout options:
- Lump Sum: You receive the entire accumulated cash value as a single payment, with the tax event on any gain incurred within that tax year.
- Fixed Period: You receive payments for a set period ranging from one to 30 years. Payments stop once this period is complete. If you were to pass away during the selected period, a designated beneficiary would receive the remainder of the payments, ending at the previously agreed-upon time. This income option allows you to surrender all or a portion of the remaining lump-sum value; in the case of a partial surrender, continued income is recalculated for the remainder of the fixed period.
- Life Income with No Death Benefit: You receive the highest monthly life income, with payments that are guaranteed for life. Payments stop upon your death.
- Life Income with Period Certain: You receive guaranteed payments for the duration of your life. If you were to pass away during the period certain, a predetermined period of time after which no payments to a beneficiary will be made, a designated beneficiary would receive the payments for the remainder of the period certain. You may choose a period certain of five, 10, 15, or 20 years.
- Joint and Survivor Income: You and a joint annuitant receive guaranteed payments until one of you passes away. At that time, the survivor continues to receive a percentage (either 50%, 66%, or 100%) of the original payment amount until their death. The percentage of the original income payment that will be paid to the surviving annuitant is chosen at the time of purchase.
Choosing a Payout Option
The payout option you choose should take into consideration the reason you decided to purchase the annuity and the potential duration that continued income may be necessary.
If your goal is to ensure that you will receive income throughout your retirement…
Consider one of the “life income” payout options. Even with careful budgeting, it is possible to outlive your retirement assets. While pension funds, military retirement pay, and Social Security benefits are guaranteed for life, for many, the bulk of their savings are not a sure bet – once they are gone, they are gone and rejoining the workforce may not be possible. By choosing a life income payout option for an annuity, you are creating a floor of income that acts as a financial safety net, guaranteeing a monthly payment for the remainder of your life.
If you want to pass money to a survivor…
You need to choose a payout option that provides payments after your death. The only way for you to guarantee that money would go to a beneficiary is to choose the joint and survivor income payout option, in which you and a joint annuitant both receive payments until one of you passes away, after which, the survivor continues to receive payments until their death. If you choose either the fixed period or life income with period certain payout option, there is the possibility that payments could be made to a beneficiary; however, this depends on the timing of your death. In both cases, you would need to pass away within the chosen period in order for payments to be made to your beneficiary.
If you want a temporary boost to your income but are not concerned with having payments delivered until your death…
Consider the fixed period payout option. This is a great choice if, for example, you want extra income at the beginning of your retirement, while you are travelling and spending money, and then want to settle down in your later years and live more modestly. It could also be a good option if you want to bridge the gap between your working years and when you want to claim Social Security or need to begin taking required minimum distributions from your retirement accounts (at age 73).
Note: The fixed period payout option allows you to access a lump-sum payout of the remaining account balance at any time. This feature provides the potential to address unforeseen circumstances instead of being locked into an income payout plan.
If your goal is to use an annuity simply for growth…
Consider moving the accumulated value of the annuity into a different risk exposure via a 1035 tax-free exchange. This allows you to reinvest your original principal amount and any earnings into another annuity without an immediate taxable event. Annuity exchanges can be used to lower risk when variable product risk is no longer appropriately aligned with time horizon. This type of change involves many considerations, so be sure to speak with a trusted adviser to examine the pros and cons of each allocation option.
Some annuities do not provide income payments to a beneficiary after the death of the original annuitant in exchange for larger payments to the annuitant while they are alive.
However, some annuities are set up in such a way that a beneficiary can receive income from the annuity after the original annuitant passes away. If you are the beneficiary of a Navy Mutual annuity, you have multiple options after the death of an annuitant.
If the spouse of the original owner was listed as the annuity’s beneficiary, they can be retitled with ownership and annuitant status themself and continue the terms of the contract after the original annuitant or owner’s death. This means that they can continue to defer taxation or collect any remaining income payments as scheduled and can select a new beneficiary of their own.
A beneficiary can annuitize their portion of the original annuity’s accumulated value and create an income stream for the remainder of their own life. This allows the beneficiary to spread the tax liability out over the remainder of their life, potentially leading to the lowest tax liability each year.
The beneficiary will receive the full amount of the annuity’s remaining cash value as a single payment. The beneficiary will receive a 1099 for any difference between what was originally paid for the annuity and the amount of the death benefit during the tax year in which they receive the funds.
Non-spouse beneficiaries can either annuitize over their own life expectancy or withdraw incremental amounts from an annuity for a five-year period provided that the entire value of the annuity is withdrawn by the end of the fifth year. This allows beneficiaries to spread their tax liability out over several years.
Anyone who receives proceeds from an annuity will owe ordinary income tax on growth, but the after-tax basis (premium deposits) will always be distributed tax-free. For example, if the owner of the annuity originally paid $100,000 for the annuity and earned $25,000 by the time of their passing, the beneficiary of the policy would receive $125,000 and owe taxes on $25,000. The timing of taxation depends on either IRS code requirements or when the beneficiary withdraws money from the annuity.
If you are ready to learn the basics of annuities, start here. Then, when you are ready to set yourself up with guaranteed income, you can schedule a consultation with a representative.
Current Annuity Rates
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