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What Happens to a Pension Annuity When You Die?

Stan Haithcock
May 2, 2024
What Happens to a Pension Annuity When You Die?

So, what happens to a pension annuity when you die? Hi, I'm Stan The Annuity Man, America's annuity agent, licensed in all 50 states, including the one you're sitting in. But let me take my hat off because you died, right? Let me just say a word. I really liked you a lot. You died. It was not pretty. But you have a pension annuity. And we need to explain to your family and beneficiaries what happens to it when you die.

Fortunately for you, you haven't died because you're reading this blog. So, I'll put this hat back on, and then you can take this blog and forward it to your beneficiaries and your spouse or partner.

Annuity Types

So, here's what we're talking about when I say pension annuity: it really comes down to three types of products. The first is a Single Premium Immediate Annuity, which is the granddaddy of all annuities. It's a pure transfer of risk. You can structure it in over 30 different ways. But in essence, it's a personal pension product. The sister product is a Deferred Income Annuity, a DIA, which has the same structure. It comes down to when you want to start the income. And then the sister product of the Deferred Income Annuity is a Qualified Longevity Annuity Contract, which can only be used in your traditional IRAs or those type of qualified type accounts. But those are all considered pension annuities.

Now, over here on the side, a little bit is what's called an Income Rider. It can be attached to specific policies like Indexed or Variable Annuities. Income Riders are guaranteed lifetime income payments, which I guess you can consider pension-type annuities as well.

When it comes to pension annuities, there's not just one type. There are really three plus one. However, the Immediate Annuity, the Single Premium Immediate Annuity, is commonly referred to as a pension annuity. But it comes down to when you want the income to start and how you want to structure it. And these quotes with these pension annuities, you buy them like a plane ticket. There's not one that's better than the other. The quotes change every seven to 10 days, like a gallon of milk. But I wanted to establish what a pension annuity is before we start talking about what happens to a pension annuity when you die.

Structuring It

Does a pension annuity stop when you die? Good question. It depends on how you structure it. One of the biggest misconceptions and comments that I hear is, "I've never bought an annuity, Stan, because when I die, the evil annuity company keeps all the money." Many people believe that, and unfortunately, so many advisors and financial journalists believe that, which is garbage. You can structure your pension annuity in a myriad of ways. You can structure it so it will pay you for the rest of your life. But the evil annuity company doesn't keep a penny under any circumstance. You can structure it however you want.

The Two Questions

Two questions. What do you want the money to contractually do, and do you want those contractual guarantees to start? You can say to me, "Hey, Stan The Annuity Man, America's annuity agent. I want a lifetime income stream for me and the wife or me and the husband. But I want to make sure that if we die or the second spouse dies, whatever money's left in that account goes to the list of beneficiaries." And we can have that money that's left over go in payment form to them, or we can have it go lump sum to them.

I always tell people you want to do the payment form because you don't want them showing up at your funeral in a Lamborghini for which they paid cash. You want them showing up in a Lamborghini that they're making payments on like my daughters; they'll helicopter in when I die.

The point is that what happens depends on what you want to happen. You're in control of the contract. You are in control of the structure. When we talk, you go to The Annuity Man and schedule a call with me; I will ask you, "What do you want to happen to the money when you die?" Because if you say, "Screw my beneficiaries, I can't stand them. I don't care. I want the highest payout," then we're going to do either single life only or joint life only. What is that? That's the one where people go, "I never bought an annuity because the annuity company keeps the money." That's what they're talking about. That's one of over 30 ways to structure it. So, life only and joint life only will pay you the highest because you're shouldering some of that risk.

I want you to listen clearly to me. Lean in. You can structure your pension annuity so that it will pay you for the rest of your life regardless of how long you live. "What if I live to 125?" It'll pay. "What if I lived to 150?" It'll pay. "What if I lived to 175?" It'll pay.


You can also structure it so that 100% of any unused money goes to the listed beneficiaries of the policy. Period. So, having your cake and eating it too a little bit. You're transferring the risk to the annuity company to pay you for the rest of your life, regardless of how long you live. Also, we can structure it so that 100% of any unused money goes to the beneficiaries.

Remember, with your pension annuity, the pension you're receiving is a combination of return of principal plus interest. The true value proposition to these pension annuities is when your account's at zero and you're in the annuity company's pockets, they have to pay you. Until then, you're getting your money back with interest, which is fine. Do not let any annuity agent or advisor say they can give you a lifetime income stream. And then the growth offsets is what's taken out. Crapola. Period.

You want to transfer the risk, knowing that if you outlive your life expectancy, the account could go to zero. But that's okay because the annuity company's on the hook to pay, which is a good thing. After all, annuities are the only product type and category that can guarantee a lifetime income stream regardless of how long you live. Not one other financial product can do that. Period. You either find value in that, or you do not. To me, I find value in that.

It Has Its Place

Annuities have their place in a pensionless world where less than 10% of private companies offer pensions. Because all of us, when we get to chapter two of our life with 10,000 baby boomers reaching age 65 every single day, a lot of people want to make sure that income's going to be hitting their account for the rest of their life and they don't have to worry about it or track the stock market. That's where a pension annuity fits and where you should consider it in your portfolio.

Client Example

I got a call the other day from a gentleman whose mother had passed away. She had a pension annuity that he didn't even know about, but now he found out about it. And he's calling me and saying, "Hey, Stan The Annuity Man, do I get any of that money?" The answer is that it depends on how that pension annuity was structured. If she structured it life only just on her life and she died, then there's nothing for him. But if she structured it life with a period certain or life with cash refund or life with installment refund, and I know I'm kind of getting in the weeds, then there might be money available to him upon her passing.

If that's a situation that's happening to you right now where you have a family member who passed away and had a pension annuity, simply schedule a call with us. We'll take a look at it for you. And then, we'll weigh in with the facts on what's available to you. We'll get on the horn with an annuity company if needed. But the bottom line, go to The Annuity Man and schedule a time with me so that I can look at exactly what type of pension annuity that was, how it was structured, and where it came from. And believe me, I've been doing this forever. So, there's not a situation that I haven't seen yet.

It comes down to when you were talking about what happens to the pension annuity when you die or at death. Just remember, it's the customization of that quote that we'll have to see. What did they choose? And if you're structuring a pension annuity for yourself and your family, you need to consider that. You need to think, "Okay, when my Learjet hits the mountain, when my Ferrari hits the tree, when my Bentley flips over and I die, how do I want that unused money dispersed?" I couldn't give a rip about anybody in my family; I just wanted the highest payment, then it's life only. But if you want to make sure, if you worked hard for that money every penny, and you want to make sure that yes, you do have that lifetime income stream payment, but you want to make sure that 100% of the unused money goes to the beneficiary, then let me work with you on setting up that structure.

When you go to The Annuity Man, you can run your own Immediate Annuity pension-type quotes. Still, when we get down to the details, when you really are getting ready to make a decision, that's when you and I need to talk about it because I want to structure it exactly how you want it to work, and we can do that. Hey, thanks for joining me today. I'll see you on the next blog.

Never forget to live in reality, not the dream, with annuities and contractual guarantees! You can use our calculators, get all six of my books for free, and most importantly book a call with me so we can discuss what works best for your specific situation.

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