What is a Single Life Annuity?
If so, you probably have some valid concerns. These include everything from adjusting to a post-work life to ensuring that you wont 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 youre 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 youre 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 thats 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 youre not leaving a legacy, single-life annuities tend to have incredibly high monthly payouts. 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. Its 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 youll get consistent and predictable payments. A variable annuity is a little riskier since its based on the underlying performance of your portfolio. Regardless if you select a fixed or variable single-life annuity, youll 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, theyre ideal if youre unmarried and do not have children. And, because they offer the highest payouts, they make a lot of sense if youre single and at or near retirement age. Generally speaking, those who very young people, like in their 20s and 30s, shouldnt 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. Thats not the case for anyone between the ages 55 to 75. This age group will benefit from the guaranteed income that an annuity provides. Whats more, annuities arent 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 spouses living expenses could presumably decrease. As youve probably assumed, single-life annuities really dont make sense for married people. This is especially true if the couple doesnt 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, lets say that youre married and your spouse passes away prematurely. If you have your own single-life annuity contract, you can support yourself. Single life annuities also arent 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 youll 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. Women tend to have a longer life expectancy. If youre 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. The remainder of the money will most likely go to the insurance company. So, if youre in poor health or want to leave money to your family, a single-life annuity isnt right for you. Single-life annuity FAQs. 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 arent as many fees associated with a single-life annuity since you adding on riders like a death benefit. The exact amount youll 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. 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 youre 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. Here you will receive a predetermined duration of payments, typically 10 to 20 years. As such, this should be considered if youre 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. This really depends on factors like your current financial situation, retirement goals, and if youve 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 20s and 30s, 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, heres what you should be on the lookout for;  Best annuity rates . Not only is this the primary metric of a single life annuity, but its also easy to compare between companies. Just make sure that you dont 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 thats related to your annuity. . Not only is this the primary metric of a single life annuity, but its also easy to compare between companies. Just make sure that you dont 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 thats related to your annuity. The financial strength of the company. If the company goes bankrupt, then youre out of luck. Always check the financial strength of the company by reviewing the companys ratings from agencies like A.M. Best, Fitch, Moodys, and Standard & Poors. If the company goes bankrupt, then youre out of luck. Always check the financial strength of the company by reviewing the companys ratings from agencies like A.M. Best, Fitch, Moodys, and Standard & Poors. Availability of policy riders. While riders associated with single life annuities arent 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. While riders associated with single life annuities arent 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 whats spelled out in the contract before making a commitment. The bottom line. If youre single and arent planning on naming a beneficiary, then a single-life annuity makes sense. However, youll want to do this when approaching or are at retirement age and have maxed out your other retirement savings. appeared first on Due.