Life insurance: how to make the right choice between an annuity or a lump sum at the time of retirement? – September 2022 – News – Life insurance

If you have a life insurance policy, retirement is conducive to the recovery of your wisely invested savings. Three choices are available to you: opt for a lump sum exit or a life annuity exit, or even both. What is the best option?

Retirement is a long-awaited and dreaded time. It marks the end of working life, but also often a decline of your income. For example, if you have contributed for the number of quarters required for the basic scheme, you will receive 50% of the average annual salary selected over the best 25 years.

To anticipate this shortfall, several long-term savings solutions exist, among them thelife insurance. To take advantage of this, there are three possible solutions: the life annuity, the capital outflow, or even a combination of the two.

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An ideal annuity for additional income

Opting for a life annuity guarantees a stable and secure income. This also allows you to benefit from additional income on a periodic basis (monthly, quarterly or annually) until the end of your life. The amount received depends on two factors: the capital held on the contract and the age of the holder at the time of the annuity.

Regarding taxation, only part of the life annuity is subject to income tax and social security contributions. Again, it all depends on the age of the insured:

  • 70% for those under 50,
  • 50% for insured persons aged between 50 and 59,
  • 40% for insured persons aged between 60 and 69,
  • 30% from age 70.

On the other hand, in the event of the holder’s death, the heirs receive nothing, except in the case of joint and survivor annuities.

For a large expense, favor the capital outflow

In the case of the capital outflow, the subscriber receives the sums paid into his life insurance contract, via a redemption (partial or total). There are two capital exit scenarios: either the exit is direct. This means that the subscriber receives all of the outstanding amount of the contract, in one go. Either the exit is said to be programmed, and in this case the subscriber makes partial redemptions in several installments.

“In the event of total surrender of the life insurance, you will receive all of the sums at once and your life insurance contract will be closed. You then “lose” the tax advantages of a contract of more than 8 years, starting with the tax allowance for life insurance of 4,600 euros (or 9,200 euros for a couple) that you “burn” in one only once”, recalls MoneyVox.

Partial surrenders make it possible to stagger withdrawals and avoid any income tax thanks to the annual tax allowance on contracts over 8 years old. And in the event of the death of the subscriber of the life insurance contract, the remaining sums due will be paid to the designated heirs.

Do not hesitate to seek advice and study your situation

Although there is no “best option” exit, the choice depends above all on the situation of each one. To find the most suitable solution, it is better to seek advice from your insurer. To decide, it is recommended to study his income, the amount of his savings, his age, his marital situation and obviously his objectives.

If you plan to finance a project quickly such as a trip or work, the capital outflow is preferable. Conversely, if the goal is to have regular additional income throughout your retirement, a life annuity is recommended. However, both solutions have advantages and disadvantages to take into account, and it is even possible to mix the two.

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