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What is a Single Life Annuity?

Updated on January 17th, 2022
Fact checked by John Boitnott

John Boitnott

John Boitnott graduated from UC Santa Barbara with a Masters Degree in Education. He worked for 14 years as a broadcast news writer for ABC, NBC, and CBS News where he covered finance, business and real estate. He covered financial news for SAP for four years. Boitnott is now working as a columnist for The Motley Fool where he covers personal financial and investing strategies.... Read More

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Financial Planning for Singles

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.

What is 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.

Who could benefit most from a single life annuity?

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.

Who won’t benefit from a single life annuity?

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.

Single-life annuity FAQs.

How much does a single-life annuity cost?

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.

Purchasing a single-life annuity.

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:

  • Savings
  • Selling mutual funds or stocks
  • Transferring funds from an IRA or 401(k)
  • A 1035 Exchange where you cash in the surrender value of a life insurance policy

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.

Are there alternatives to a single-life annuity?

Yes. There are alternatives to a single-life annuity, including;

  • Period certain annuities. Here you will receive a predetermined duration of payments, typically 10 to 20 years. As such, this should be considered if you’re in poor health or elderly. Also, if you die before the end of the term, a designated beneficiary can continue to receive these payments for the remainder of the time period.
  • Joint and survivor annuities. Unlike straight life annuities, joint and survivor annuities will guarantee lifetime payments for the contract owner and another person. However, because these payments last longer, payments tend to be lower.

When should I purchase a single-life annuity?

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.

How to compare policies by the insurer.

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;

  • Best annuity rates. Not only is this the primary metric of a single life annuity, but it’s also easy to compare between companies. Just make sure that you don’t overlook additional costs that will eat into your profits. Examples include administration fees or commissions. And, always ask for a prospectus as this contains a list of earnings, rates, fees, and other relevant information that’s related to your annuity.
  • The financial strength of the company. If the company goes bankrupt, then you’re out of luck. Always check the financial strength of the company by reviewing the company’s ratings from agencies like A.M. Best, Fitch, Moody’s, and Standard & Poor’s.
  • Availability of policy riders. While riders associated with single life annuities aren’t always an option, there are ways that you can customize this annuity. For example, you could add an LTC rider to address any concerns you might have over long-term care.
  • Customer service. Since annuities can be complex, you want to make sure that the annuity company is there when you need them. They should be easy to contact and have stellar online reviews.

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.

The bottom line.

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.

John Rampton

John Rampton

John Rampton is an entrepreneur and connector. When he was 23 years old, while attending the University of Utah, he was hurt in a construction accident. His leg was snapped in half. He was told by 13 doctors he would never walk again. Over the next 12 months, he had several surgeries, stem cell injections and learned how to walk again. During this time, he studied and mastered how to make money work for you, not against you. He has since taught thousands through books, courses and written over 5000 articles online about finance, entrepreneurship and productivity. He has been recognized as the Top Online Influencers in the World by Entrepreneur Magazine and Finance Expert by Time. He is the Founder and CEO of Due.

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