A good annuity is one that gives you more for less. One of the main functions of annuities is to provide a payout or series of payments to the annuity investor. Naturally, the higher the payments are, the greater the benefit to the annuity investor. However, you do not have to leave the size of your annuity payments to chance. Several important factors influence the size of your annuity contracts payout.

Contribution(s)

When you invest more money in an annuity, you are likely to get more out of it. With a deferred annuity, the frequency and timing of contributions have a significant impact on the annuity benefit. Immediate annuities have no accumulation phase and, therefore, the size of the lump sum invested is what matters.

Accumulation rate

The accumulation rate (or average rate of return) is pertinent to deferred annuities only. Some annuities have better accumulation (and base guaranteed rates) than others. A higher accumulation rate increases the size of the accumulated annuity fund at retirement, which would then yield a higher annuity payout.

Settlement option

When an annuity matures or is issued (in the case of an immediate annuity), the annuity investor selects one of several settlement options. The option selected has an impact on the size of the annuity payment. For example, selecting a "straight life" option yields a higher payment than a "straight life with period certain" option. This is because the annuity provider is obligated to continue payments to a surviving spouse/beneficiaries/ estate with options other than the "straight life" option.

Gender

Surprisingly, gender plays a role in determining the size of your annuity payment. All other things being equal, the payout for a male is higher than the payout for a female. Is this another instance of gender discrimination? It clearly is not. Actuarial statistics show that, on average, women have a longer life expectancy than men do. Therefore, the annuity provider must factor the possibility of making payments over a longer period for females, hence the lower payments.

Age

Age affects annuity payments for the same reason that gender does. Receiving your annuity benefits when you are older ensures a higher payout. This is because of life expectancy and-in the case of deferred annuities- the wonder of compounded interest.

Market returns

The annuity provider's actuaries determine payments based on market returns for indexed annuities. Even for other annuities, actuaries monitor likely rates of return to assess whether the annuity provider can afford and sustain current annuitization rates.

Annuity provider

Your annuity contract is only as secure as your provider is. Clearly, not all annuity providers share the same financial strength. The financial performance of your annuity provider is what facilitates annuity plans that are friendlier to the client. Stronger annuity providers achieve better market returns and are able to provide better guarantees in the event of market failure.

Tax treatment

Normally, immediate annuity payouts are not subject to income tax. However, the payouts from a deferred annuity may be subject to that dreaded tax. Tax laws vary among states and countries, so a definitive statement on the tax implications of deferred annuities cannot be made. However, taxation and inflation are corrosive agents for the nominal and real value of your annuity payments.

Knowledge of what influences your annuity benefits can help you to make better choices concerning your annuity. You would likely choose the right provider, the right type of annuity and make informed decisions pertinent to the annuity contract later on.

Learn more about this author, Darrell Victor.
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