How Lifetime Annuity Income Is Calculated?

Short Answer:

‍Lifetime annuity income is primarily calculated based on life expectancy at the time income begins, with interest rates playing a secondary role.

What Determines Lifetime Annuity Income Payments?

Lifetime annuity payments are determined primarily by life expectancy.
The older an individual is when income begins, the higher the payment.
The younger the individual, the lower the payment.

How Life Expectancy Affects Income

Life insurance companies price lifetime income based on projected lifespan at the time payments start.
Fewer projected payments result in higher monthly income.
More projected payments result in lower monthly income.

What Role Do Interest Rates Play?

Interest rates play a secondary role in pricing.
Annuity companies glance at interest rates, but life expectancy is the primary pricing driver.

Single Life vs Joint Life Income Calculation

Single life payments are higher because income covers one life.
Joint life payments are lower because income must cover two lives and continue for the surviving spouse.

Are Annuities Commodity Products?

Yes. Annuities are commodity products.
Carriers are shopped for the highest contractual guarantee.

Bottom Line

Lifetime annuity income is primarily based on life expectancy at the time payments begin, with interest rates playing a secondary role.

FAQ

Does age affect lifetime annuity payments?

‍Yes. Older individuals typically receive higher payments because fewer projected payments are expected.

Do interest rates fully determine annuity income?

‍No. Interest rates play a secondary role compared to life expectancy.

Are joint life payments lower than single life payments?

‍Yes. Joint life payments are lower because they cover two lives.

Do annuity quotes expire?

‍Yes. Quotes typically expire within seven to ten days unless locked in.