Do you see retirement on your horizon? If so, you probably have some valid concerns. These include everything from adjusting to a post-work life to ensuring that you won’t outlive your savings. While I can not help you with making the transition from work to retirement, I might be able to assist you with the latter concern.
If you’re in search of a retirement vehicle that will guarantee a regular income for the rest of your life, look no further than an annuity. And, if you’re single, you might want to hone-on on a single life annuity.
Also called straight life or life annuity, a single life annuity is a type of annuity that’s been structured to guaranteed payments to one individual for the duration of their lifespan. Unlike a joint life payout, this will provide an income to surviving spouses or additional annuitants when the annuity owner dies. Because you’re not leaving a legacy, single-life annuities tend to have incredibly high monthly payouts.
How does a single-life annuity work?
Just like any other type of annuity, you make tax-deferred premium payments until a specific time period — or until an exact amount has been reached. And, just like any other annuity, this is called the “annuitization” phase.
At the conclusion of the “annuitization” phase, the policy will enter the payout phase. It’s at this point when monthly payments are disbursed to the annuitant.
Another common characteristic regarding single-life annuities is that they come in two forms; fixed and variable. With a fixed annuity you’ll get consistent and predictable payments. A variable annuity is a little riskier since it’s based on the underlying performance of your portfolio.
Regardless if you select a fixed or variable single-life annuity, you’ll receive payments for the rest of your life. But, when you die, these payments will cease.
Because a single-life annuity provides payments to one person and can be passed on to a beneficiary, they’re ideal if you’re unmarried and do not have children. And, because they offer the highest payouts, they make a lot of sense if you’re single and at or near retirement age.
Generally speaking, those who very young people, like in their 20s and 30s, shouldn’t focus on an annuity just yet. Rather, they should consider investing in the stock market. The reason is that they have plenty of time to make up for any losses.
That’s not the case for anyone between the ages 55 to 75. This age group will benefit from the guaranteed income that an annuity provides. What’s more, annuities aren’t widely influenced by market volatility.
What about older people who are in their late 70s and 80s. Not to be grim, but they may not have time left for annuities to make sense. And, when compared to other retirement financing tools, annuities can be expensive.
Does that mean a married couple should completely write off a single-life annuity. Not necessarily. If a couple has a pension or other retirement vehicles, a single life annuity could provide a higher payout — just as long as both spouses are living. Also, when the annuity holder dies, the surviving spouse’s living expenses could presumably decrease.
As you’ve probably assumed, single-life annuities really don’t make sense for married people. This is especially true if the couple doesn’t have many other retirement savings sources. But, if a couple has multiple sources of retirement income, a single-life annuity should at least be explored.
That might sound counterproductive. But, let’s say that you’re married and your spouse passes away prematurely. If you have your own single-life annuity contract, you can support yourself.
Single life annuities also aren’t a smart investment if you want to leave your heirs a little something when you die. If this is a priority, then consider another type of annuity that allows you to attach a death benefit. This way your benefices will either receive a lump sum payment or contine to receive your monthly annuity payments.
The pros and cons of a single life annuity.
The main advantage of a single-life annuity, as with most annuities, is that you’ll have a guaranteed lifetime income. That should help ease any anxiety you may have about outliving your savings. Specifically, though, single life annuity payments typically have the highest of all annuity payments. This is because the insurance company is only paying benefits to one person.
Furthermore, single life annuities for men pay slightly more than single life annuities for women. The reason? Women tend to have a longer life expectancy. If you’re married, you may want to take that into consideration monthly payments for married couples are lower. The reason being that the insurance company is responsible for paying lifetime benefits to a surviving spouse.
On the other side of the coin, what if someone bought a single-life annuity and dies not long after? The remainder of the money will most likely go to the insurance company. So, if you’re in poor health or want to leave money to your family, a single-life annuity isn’t right for you.
Usually, straight life annuities are cheaper than other types of annuities. This is because the insurance company is assuming less risk, such as not having to continue annuity payments to a spouse. Also, there aren’t as many fees associated with a single-life annuity since you adding on riders like a death benefit.
The exact amount you’ll pay for a single-life annuity depends on how much money you want to retire with. The Due Annuity Calculator can help you figure this out.
There are pretty much two ways you can purchase a single-life annuity policy. The first would be through periodic payments that you pay over the course of your working life. The second is with a single-lump payment when at or approaching retirement.
Single-life annuity premiums can be funded in multiple ways, including:
You can also use large settlements or windfalls, like an inheritance or lottery winnings. The benefit of this is that this will provide a steady income during retirement. More importantly, it can help you prevent spending this money wastefully.
Yes. There are alternatives to a single-life annuity, including;
This really depends on factors like your current financial situation, retirement goals, and if you’ve maxed out other retirement sources, such as an IRA or 401(k). As a general rule of thumb, a decent time to buy a single annuity would be between the ages of 55 and 75. The reason is that you can bounce back from stock market declines in your 20’s and 30’s, while those over the age of 75 may not live long enough to realize the benefits.
If your want to receive guaranteed payments for the remainder of your life, then you need to work with a top-notch insurance or annuity company. Since this can be a daunting task, here’s what you should be on the lookout for;
And, if you have any questions or concerns about the annuity contract, always ask or work with a trusted financial advisor. You want to clearly understand what’s spelled out in the contract before making a commitment.
If you’re single and aren’t planning on naming a beneficiary, then a single-life annuity makes sense. However, you’ll want to do this when approaching or are at retirement age and have maxed out your other retirement savings.
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