What Is a Single Life Annuity?

A single life annuity is a type of retirement income product that provides regular payments to an individual for the rest of their life. Unlike other annuity types, it is designed to cover just one person, with no benefits continuing to a spouse or beneficiary after the annuitant’s death. Single life annuities often appeal to retirees seeking a straightforward way to secure guaranteed income during their lifetime. These annuities typically offer higher monthly payouts compared to joint annuities, as the payments are calculated based solely on the annuitant’s life expectancy.

You can also consult with a financial advisor before deciding on whether an annuity is right for you.

What Is a Single Life Annuity?

The single life annuity is just one of several types of life annuities that can help fund retirement. It’s a type of retirement income product designed to provide guaranteed payments for the lifetime of one individual, typically the annuity owner. When you purchase a single life annuity, you make either a lump-sum payment or a series of payments to an insurance company. In return, the insurer promises to pay you a steady stream of income for as long as you live, regardless of how long that may be.

The defining feature of a single life annuity is that the income payments stop upon the death of the annuitant. This means that no further payments are made to beneficiaries or heirs after the annuitant passes away. Because the payout period is based solely on one person’s lifespan, single life annuities often provide higher monthly payments compared to joint or survivor annuities, which cover two lives.

Single life annuities are best suited for individuals who want to maximize their retirement income and do not need to provide ongoing financial support to a spouse or dependents after their death. This option can be particularly attractive for single retirees or those whose loved ones have independent financial resources. It’s important to carefully consider your circumstances and long-term goals before choosing this type of annuity.

Who Is a Single Life Annuity Good For?

Single life annuities can be good choices for unmarried people because they offer the highest payouts. And they make the most sense for single people at or near retirement age.

Very young people, in their 20s and 30s, may be better off investing in the stock market rather than buying an annuity. Since they have decades to go before retirement, the passage of time can help smooth out the effects of market cycle ups and downs on their portfolios.

People ages 55 to 75 may benefit the most from the guaranteed income of an annuity. It’s insulated from the market booms and busts. Older people, in their late 70s and 80s, may not have enough years of life remaining for annuities to make sense. That’s because annuities have a relatively high cost compared to other retirement financing tools.

For a couple with a pension or other savings that could provide retirement income, a single life annuity could give them a higher payout while both spouses are living. After the annuity holder dies, the surviving spouse’s living expenses would presumably be lower.

Who Shouldn’t Use a Single Life Annuity?

Single life annuities make the least sense for married people, especially those with limited other sources of retirement savings. But a single life annuity can still be a good choice for couples with other retirement income, depending on your situation and financial needs.

If other income can support a surviving spouse, the single life annuity might be a good choice. However, if the annuity provides the only retirement income, a joint and survivor annuity may make more sense.

Single life annuities also don’t help people who want to leave a bequest to heirs other than spouses. If a retirement saver is concerned about bequeathing assets to children or other relatives, another annuity type that makes a lump sum payment or continues regular monthly payments to survivors may be a better choice.

Alternatives to Single Life Annuities

There are some different types of annuities that help address the shortcomings of the single life annuity. Below are several options you can consider for your long-term retirement plans.

1. Joint and Survivor Annuity

A joint and survivor annuity pays monthly benefits for as long as either the annuity holder or a beneficiary is alive. Typically, the beneficiary is the spouse. The joint and survivor annuity thus funds both spouses’ retirements.

There is, however, a drawback to the joint and survivor annuity. That is, the monthly payout will be smaller than for a single life annuity purchased for the same dollar value. Another wrinkle on the annuity concept can help address this concern while still leaving a surviving spouse some income, at least for a time.

2. Period Certain Annuity

This alternative is the period certain or life plus period certain annuity. If you purchase one of these annuities and die before a certain number of years, then your beneficiary will still receive payments until that period expires. A typical period for a period certain annuity is 10 or 20 years.

The period-certain annuity also helps moderate the risk of an annuity buyer dying prematurely. A premature death reduces the value of a single life annuity because payments end with the annuity holder’s death.

By continuing payments to a beneficiary for a certain number of years, the period-certain annuity helps the annuity buyer receive a higher payback on the purchase of the annuity despite a premature death. However, annuity holders should be mindful of the potential tax implications of that higher payout.

Bottom Line

When choosing an annuity, you should consider your life expectancy, interest rates, fees, insurance company ratings, payment options and tax implications. Single life annuities offer the highest payouts of any type of annuity. However, the drawback of single life annuities is that they don’t help provide financial support for spouses or other dependents after the death of the annuity holder. Other types of annuities can create post-retirement income for people other than the annuity holder. In those cases, joint and survivor annuities or period-certain annuities may be better options.

Retirement Tips

• Wondering if a single life annuity would be good for your retirement plan? You may want to consult with a financial advisor before making a decision. Finding a financial advisor doesn’t have to be hard. SmartAsset’s free tool matches you with vetted financial advisors who serve your area, and you can have a free introductory call with your advisor matches to decide which one you feel is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
• Don’t forget to account for Social Security benefits when you’re putting together your retirement income plans. You can use SmartAsset’s Social Security calculator to figure out what your benefits might look like.

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