How Your Annuity Works In Retirement

How Your Annuity Works In Retirement

The portion of your Retirement Plan account that you choose to convert to an annuity is added to a financial “pool” from which all annuities are paid. Mortality tables tell us that a certain number of people in the pool will die each year. It is not known, of course, which persons will live through each year, but actuaries do know approximately how many will live. MMBB can therefore rely on the “law of averages” to provide lifetime income for each person in the pool. The pool is analyzed annually for sufficiency.

Half of the persons who reach retirement age will die before they reach their life expectancy. The other half will live beyond their life expectancy. If you live exactly to your life expectancy, you will have received in monthly payments the total value of your Retirement Plan account that you elected to convert to an annuity, plus the investment results experienced during the period you received annuity payments. Those who live beyond life expectancy continue to receive a lifetime annuity from the funds in the pool.

When you convert your account to an annuity, you are credited with a set number of annuity units which remain constant throughout your retirement. The number of units credited to you depends primarily on the dollar amount you convert to your annuity. Other factors include:

• the form of annuity payment you select; and
• your life expectancy and that of your joint annuitant (if any) at the time you retire.

Once determined, the number of annuity units does not change throughout your retirement unless you select a joint annuity. When one joint annuitant dies, the number of annuity units may decrease, depending on the option chosen. The number of annuity units credited to you, times the annual annuity payout value, determines the amount you receive for the year.