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Retirement Planning > Retirement Investing

Ask the expert: period certain annuities for retirement plan distributions?

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The question was: When should I consider recommending that my clients take a period certain annuity option when taking retirement distribution from their defined benefit plan? What about when they take distribution from a defined contribution plan like a 401(k)?

The answer is: “Typically plans offer, as an option to the joint and single life annuity, a period certain annuity. A period certain annuity provides payments for a specified period of time–usually 10 to 20 years–even if the participant, or the participant and spouse, die before the end of that period.

“Thus the period certain annuity provides benefits for the participant’s heirs even if the participant (or participant and spouse) die early.

“Because of this guarantee feature, the annual or monthly payments under a period certain option are less than they would be under an option where payments end at death.

“A period certain option therefore should be chosen if the participant wants to make sure that his heirs are provided for in case both he and his spouse die shortly after retirement. For example, the participant and spouse might choose this option if they were both in poor health, or if they wanted to make sure that their children (or other heirs) with large financial needs were provided for in the event of their deaths….

“[As for defined contribution plans,] in some plans the participant can elect to have his account balance used to purchase an annuity from an insurance company. The same considerations in choosing annuity options then apply as have already been discussed.”

Source: Excerpted from Tools & Techniques of Financial Planning, 7th edition, by Stephan R. Leimberg, Martin J. Satinsky, Robert J. Doyle, Jr, and Michael S. Jackson. The publisher is The National Underwriter Company, Cincinnati, OH. Read more about Tools & Techniques of Financial Planning


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