What is a 'Years Certain Annuity'

A years certain annuity is a retirement income product that pays the holder a continuous periodic income, generally monthly, for a specified number of years. Like all annuities, it is used to provide a steady income during retirement. But what makes a years certain annuity unique is that it provides that income for a predetermined length of time regardless of how long the annuitant lives. This differs from a life annuity, which provides payouts for the remainder of the annuitant's life and, in certain cases, the life of the annuitant's spouse. A years certain annuity may also be referred to as a "period certain annuity," "annuity certain," "fixed period annuity," or a "guaranteed term" or "guaranteed period annuity."

BREAKING DOWN 'Years Certain Annuity'

A years certain annuity typically involves larger monthly payouts than a life annuity or an immediate annuity since it pays out over a clearly defined period of time rather than until the death of the annuitant. During the period specified by the annuity owner, payments are made to the annuity owner until the period ends. Should the annuitant die before the period ends, their beneficiary will receive the balance of payments until the period reaches its expiration. For example, if the annuity buyer chose a years certain annuity with a 10-year period but they died in year eight, their beneficiary would receive payments for the remaining two years. If the annuitant were to die after the predetermined 10-year period ended, then no additional payment would be due to a beneficiary. Given the specialized nature of years certain annuities, they are used less frequently than life annuities. Common period lengths for a years certain annuity range from five to 30 years.

Years Certain Annuity: Is it Right for You?

Given their unique role in retirement income planning, a years certain annuity has a narrow "sweet spot" of usefulness. As such, it may be more appealing to an individual who will have another source of income during retirement, such as another annuity or other retirement plan. A years certain annuity would be risky if it were the only retirement income because the annuitant could outlive the payment period and be forced to spend the remaining retirement years on a reduced income.

A years certain annuity also might be used to cover a short period of time, such as the gap between retirement and the age at which full Social Security benefits may be claimed. Such a use would generate a higher income payment than a life annuity, which is risker for the annuity writer because it continues paying benefits until death.

  1. Term Certain Annuity

    A term certain annuity is an insurance product that guarantees ...
  2. Income Annuity

    An income annuity is an annuity contract that is designed to ...
  3. Annuity

    An annuity is a financial product that pays out a fixed stream ...
  4. Annuity Contract

    An annuity contract is a written agreement between an insurance ...
  5. Immediate Payment Annuity

    An immediate payment annuity is an annuity contract that is purchased ...
  6. Cash Refund Annuity

    A cash refund annuity refunds to a beneficiary any sum left over ...
Related Articles
  1. Retirement

    How a Fixed Annuity Works After Retirement

    These popular investments can provide a steady stream of income during your retirement years. Here are the details.
  2. Retirement

    Are Annuities Retirement-Only Investments?

    Learn more about why annuities are generally purchased and the way that they can positively and negatively affect an individual preparing for retirement.
  3. Retirement

    Buying Annuities in a Low Interest Rate World

    Learn if buying an annuity makes sense in a low interest rate environment. Also discover the different types of annuities and how interest rates affect them.
  4. Retirement

    Guaranteed Retirement Income in Any Market

    By laddering annuities, you can be sure you'll have income no matter what the market does.
  5. Retirement

    Who Benefits From Retirement Annuities

    Annuities guarantee some degree of fixed income in retirement. But is the security worth the fees and less favorable tax treatment? How to decide.
  6. Retirement

    How a Variable Annuity Works After Retirement

    These investments can provide extra income after you retire. Here’s a guide to when and how you will receive the payout.
  7. Financial Advisor

    Annuities: The Good, Bad and the Ugly

    Annuities suffer from a few perception problems. This primer that covers the good, the bad and the ugly of annuities.
  8. Retirement

    Immediate Annuities: Guaranteed Payout At A Price?

    This vehicle can have very low, or even negative, rates. Find out when it pays to invest.
Trading Center