These amounts are similar to premiums for life or auto insurance, in the sense that they are pooled into a fund from which claim payments are made. In the case of a lifetime annuity, your claim is based on your continued life. The annuity payments are calculated so that each recipient gets the largest amount that the company can pay without exceeding the fund created from the accumulations of the entire group. The funds from people who die earlier than average support those who live longer than average. As with other insurance arrangements, whether you collect a little or a lot from the insurance company, the real benefit that everyone enjoys is the financial security and peace of mind it provides.
Many people choose a lifetime annuity to be assured of an income they can t outlive.
Others hesitate to select a lifetime annuity because they must give up control over the amount of money they receive and over the amount they can pass to their heirs. These people may take advantage of less permanent arrangements for withdrawing regular income, though they could be in danger of outliving it. Still others prefer a combination of income arrangements, annuitizing a portion of their retirement accumulations and utilizing alternate arrangements for the rest of their income. These nonannuity income options can usually be changed to lifetime annuity income later on in retirement. We can t give you a personal answer, but we can tell you to what ages many people are living, according to recent TIAA-CREF data.