Joint and Survivor Annuity

A joint and survivor annuity is a payout structure covering two lives, typically a retiree and a spouse, that continues paying, at a specified percentage of the original amount, to whichever of the two survives after the first one dies.

The survivor percentage is chosen or negotiated up front and is usually 50%, 75%, or 100%. A 100% joint-and-survivor annuity pays the same amount no matter which person dies first; a 50% joint-and-survivor annuity drops to half that amount once the first person dies. Because the insurer or pension plan is committing to pay over two lifetimes instead of one, and a higher survivor percentage commits more of that obligation to continue, the starting payment shrinks as the survivor percentage rises, all else equal. See single life annuity for the payout that results from covering only one life.

The joint and survivor structure carries special legal weight inside a traditional defined benefit pension. Federal law, Internal Revenue Code Section 417 and ERISA Section 205, added by the Retirement Equity Act of 1984, makes a Qualified Joint and Survivor Annuity, with a survivor percentage between 50% and 100%, the automatic payout for a married participant in most defined benefit and money-purchase pension plans. The participant cannot simply elect a different payout, such as a single life annuity or a lump sum, without the spouse's written consent to waive the QJSA, and that consent must be witnessed by a notary public or a representative of the plan. The same statutory structure requires a Qualified Preretirement Survivor Annuity if the participant dies before retirement, before ever electing a payout. Most 401(k)-style defined contribution plans are exempt from this specific requirement; there, a surviving spouse is instead the automatic beneficiary of the account balance unless the spouse consents in writing to someone else. Choosing among the available payout forms for a specific participant is the broader question covered under pension election.

A hypothetical illustration: a pension actuarially values a single life annuity at $2,400 a month. Converting the same value into a 100% joint and survivor annuity for a similarly aged couple might reduce the monthly payment to about $2,050, a difference of $350, or roughly 14.6% ($350 ÷ $2,400). The reduction is the price of extending payments over two lifetimes instead of one.

Pros

• Protects a surviving spouse or partner from losing all pension or annuity income when the first person dies.
• The percentage and payout amount are locked in and predictable for both people involved.
• On a pension, it's the protected default for a married participant, so it happens automatically unless both spouses agree otherwise.

Cons

• Pays less each month than a single life annuity would, for as long as both people are alive.
• Once elected, the choice generally can't be changed later, even if the marriage ends or the named survivor dies first.
• If the named survivor is much younger, the longer expected payment period can make the reduction from single life meaningfully larger.