Annuity Payout Options: What is Period Certain?

A period certain annuity provides guaranteed payments for a set number of years. If the annuitant dies before the term concludes, the remaining installments are paid to a chosen beneficiary. Unlike lifetime-only annuities, this structure combines steady income with the possibility of passing along benefits. Many people select a period certain annuity to secure reliable cash flow while also preserving a payout for heirs.

Consider working with a financial advisor as you think about purchasing an annuity or making other retirement planning decisions.

What Is a Period Certain Annuity?

A period certain annuity is a contract that lets you choose when and how long you’ll receive payments. The income you receive from the annuity is guaranteed for the time period that you specify. This income would be paid to you, but can pass to a named beneficiary when you die.

For example, imagine you purchase a period certain annuity with a 10-year term that pays you $2,000 per month. If you live for the entire 10 years, you’d collect the full $240,000 in payments, after which the income would stop. If you were to die after four years, you would have received $96,000, and your beneficiary would continue receiving the $2,000 monthly payments for the remaining six years, totaling $144,000. However, if you outlive the 10-year term, no additional payments would be made beyond the guaranteed period.

Pros and Cons of a Period Certain Annuity

A period certain annuity has characteristics that can be attractive in some situations while limiting in others. On the one hand, it creates a predictable stream of income and guarantees beneficiaries will receive payments if the annuitant dies early. On the other, its finite structure may not align with long-term retirement needs or inflationary pressures.

Benefits of a Period Certain Annuity

One of the main advantages is predictability. Payments are fixed for the chosen term, allowing individuals to plan around a reliable cash flow. This certainty appeals to those covering specific financial obligations, such as a mortgage payoff schedule or a child’s college tuition.

Another benefit is the legacy component: if the annuitant dies before the payout period ends, beneficiaries continue to receive the remaining installments. This can offer peace of mind to those who want income security while also leaving a tangible financial benefit to family members.

Potential Drawbacks of a Period Certain Annuity

The trade-off is that payments stop once the term expires, even if the annuitant is still alive. Someone who outlives the payout window risks losing a source of income and may need to rely on other assets. Additionally, because payments are fixed, their purchasing power can erode over time if inflation rises.

Another limitation is the lack of flexibility: once the contract is set, the term and payout amounts generally cannot be adjusted. This rigidity may make the product less suitable for those whose financial circumstances or income needs are likely to change over time.

Are There Other Annuity Payout Options?

Annuities can be structured in several ways beyond a period certain arrangement, each designed to meet different financial goals. Other payout options include:

Single-life annuity: This option provides payments for as long as the annuitant lives, offering lifetime income security. However, once the annuitant passes away, no benefits continue to heirs.
Life with period certain: A hybrid of lifetime and fixed-term payouts, this guarantees payments for life but also sets a minimum period during which beneficiaries receive payments if the annuitant dies early.
Joint and survivor annuity: Designed for couples, this payout continues as long as either partner is alive. It can be structured to pay 100% or a reduced percentage to the surviving spouse.
Lump-sum payout: Rather than a stream of payments, this option distributes the entire contract value in a single payment. It offers flexibility but removes the steady income stream annuities are often chosen for.

Bottom Line

Whether a period certain annuity makes sense for you depends on what you need the money for and how long you need those payments to last. If you’d like to make sure that someone else is able to receive payments from the annuity if you pass away unexpectedly, a period certain annuity can help you accomplish that goal.

Retirement Planning Tips

Consider talking to a financial advisor about whether annuities would be a good fit in your financial plan. Finding the right financial advisor that fits your needs doesn’t have to be hard. SmartAsset’s free tool matches you with financial advisors who serve your area, and you can have a free introductory call with your advisor matches to decide which one you feel is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
Annuities can be helpful in mapping out your retirement income sources, but it’s important to research them carefully before purchasing one. The most important things to focus on include the type of investment returns you can expect, the fees you’ll pay to purchase the annuity and the quality of the company that’s selling the annuity contract. A financially unstable company may not make your expected annuity payments. SmartAsset’s annuity reviews can help you separate quality annuity providers from their lesser competitors.