Years Certain Annuity

Years Certain Annuity: What It Is and How It Works

What it is

A years certain annuity (also called a period certain annuity, annuity certain, fixed period annuity, or guaranteed period annuity) is a retirement income product that pays a steady stream of periodic payments—typically monthly—for a specified number of years. Payments continue for the agreed term regardless of whether the original recipient (the annuitant) is alive; if the annuitant dies during the term, remaining payments go to a designated beneficiary.

Key points

• Pays a fixed income for a predetermined period (commonly 5–30 years).
• Payments usually are larger than those from a lifetime annuity because the payment window is limited.
• If the annuitant dies before the end of the term, the beneficiary receives the remaining scheduled payments.
• No payments are due after the term ends if the annuitant is still alive.

How it works

1. Accumulation phase: The buyer funds the annuity (single premium or periodic contributions).
2. Annuitization phase: Payments begin and continue for the chosen fixed period.
3. Beneficiary treatment: If the annuitant dies during the period certain term, the beneficiary receives the remaining payments until the term expires.

Example: A 10-year years certain annuity starts paying monthly. If the annuitant dies in year eight, the beneficiary receives the payments due in years nine and ten. If the annuitant lives past year ten, payments stop at the end of the 10-year term.

Who it’s for

A years certain annuity can be appropriate when:
* You need income for a defined short-to-medium term (for example, bridging the gap until Social Security or another income source begins).
* You have other income or a separate lifetime income source, so outliving the fixed term won’t create hardship.
It is less suitable as a sole source of retirement income because the fixed term exposes the annuitant to longevity risk (the risk of outliving payments).

Advantages

• Higher periodic payments compared with lifetime annuities of similar cost.
• Guaranteed payments for a set period, with a beneficiary protection feature.
• Simple, predictable income for planning short-term retirement needs.

Disadvantages

• Payments stop at the end of the term even if the annuitant is still living.
• Risk of outliving the income if used as the primary retirement source.
• Generally used less often than life annuities because it does not cover lifetime longevity risk.

Considerations and alternatives

• Consider pairing a years certain annuity with other income sources (pension, Social Security, a lifetime annuity) to manage longevity risk.
• For lifetime income protection, compare with life annuities or life-with-period-certain options that combine lifetime payouts with a guaranteed minimum period.

Conclusion

A years certain annuity offers predictable, higher short-term income and protects beneficiaries for the remaining term if the annuitant dies early. It works best as a complement to other retirement income sources or as a temporary bridge to longer-term income like Social Security or lifetime annuities.