Assets: His retirement assets: $775,000; Her retirement assets: $248,000; After-tax assets: $185,000; he has term certain annuity
income of $11,000 a year, which will expire in 10 years.
However, Term Certain Annuity
Factors are used instead of Single Life Annuity Factors.]
To qualify the annuity must be: (1) irrevocable--periodic payments cannot be changed, (2) nontransferable--benefits cannot be changed to another beneficiary, (3) "actuarially sound"--a term certain annuity
cannot be payable for longer than the annuitant's actuarial life expectancy; and (4) the state must be named the first remainder beneficiary up to the amount of Medicaid benefits paid on the annuitant's behalf (if a surviving spouse or blind or disabled child is named as the primary beneficiary, then the state may be named the secondary beneficiary).
(Note: although often the same, technically the owner of the annuity does not necessarily need to be the annuitant as well; occasionally these are different individuals.) If the payout phase is a fixed period annuity (also called a term certain annuity
), the company promises to pay stipulated amounts for a fixed or guaranteed period of time independent of the survival of the annuitant.
He retains a 10-year $25,000 term certain annuity
interest, with no reversionary interest.
(1) Find the term certain annuity
factor for 20 years at a 3.0% interest rate - 14.8775 (from Term Certain Annuity
Factors Table in Appendix C).