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In 2009, Ted purchased an annuity for $60,000. The annuity is to pay him $1,500 per month for the rest of his life. His life expectancy is 120 months. A). Ted is not required to recognize any income until he has collected 40 payments (40 $1,500 = $60,000).
The fixed-period, or period-certain, annuity guarantees payments to the annuitant for a predetermined length of time. Some common options are 10, 15 or 20 years. In a fixed-amount annuity, the annuitant elects an amount to be paid each month until death or benefits are exhausted. If the annuitant dies before the defined benefit is paid, some plans provide for the remaining benefits to be paid to a beneficiary.