Single Life Annuity

Written by True Tamplin, BSc, CEPF®

Reviewed by Editorial Team

Updated on March 09, 2023

A single life annuity is a pension plan that pays an income to an individual over the course of their lives, rather than the traditional pension plan that would pay out to heirs or beneficiaries after death.

It is a single annuity where the single person is the only beneficiary – not a family member or spouse. It is very different from single life payments that can be made to a single person for a specific period of time.

Those single life payments are usually used as part of some sort of legal settlement, such as an out-of-court settlement for injury compensation.

A single life annuity is also different from single life insurance, where the single individual gets monthly payments until they die.

Who Should Use Single Life Annuity?

Typically single life annuities are very useful to people who want guaranteed lifetime income but wish to avoid the complexity of a lump sum payout.

A single life annuity isn't suitable for everyone – it's best suited to people who don't need or want a lot of money now but instead want to invest what they have for an income during their retirement years.

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Why They Might Want to Use One

They are beneficial for single people who want to dedicate their savings towards a specific goal, such as creating an income stream, buying an annuity later on, or leaving money for heirs.

They can be complicated and expensive if the single person needs to purchase more than one single life annuity due to multiple beneficiaries or single life payments for a period of time.

Financial experts typically recommend single life annuities for people who are more than 70 years old, are single, are healthy, have an annual income of less than $80,000, and who want to create an income stream that will last for at least 20 years.

With single life annuities, single people can choose to receive monthly payments or a single payment at the end of their lifetime.

Single recipients of single life annuity payments will need some sort of supplemental income if their single life payments are not enough to support themselves and pay for their more essential expenses.

It's important that single people have some sort of backup plan in case single life payments are not enough to fully support them, or in case single annuities don't work out for whatever reason.

How Does Single Life Annuity Work?

A single life annuity starts paying out once you hit the plan's retirement age (usually 65) and continues to make payments until your death unless you opt for the single sum payout.

Once you die, no other single life annuity will pay out to you again. A single life annuity is based on your gender and current age. The longer you live, the more you will receive after your plan's retirement age – it's a form of longevity insurance.

Optionally, single life annuities can be invested in various fund types that have different risk levels just like many other investment funds.

Depending on the single life annuity you choose, payments can be adjusted each year for inflation, or they can stay the same throughout your retirement days. Payments from single life annuities are fully taxable just like any pension plan.

In addition, single life annuities also carry a 10% federal tax penalty if you make single sum withdrawals prior to the plan's retirement age.

Keep in mind single life annuities often have limits on how much money you can invest. You may be limited to somewhere between $100,000 and $500,000 based on the single life annuity's terms.

In addition, single life annuities require minimum annual contributions that typically aren't less than 5% of your total retirement fund balance.

When Can You Expect the Payout

Defined single life annuities start making payments once you reach your single life annuity's retirement age (usually 65). If there is a waiting period before single life annuity payments can begin, it usually isn't more than one or two years.

Every single life annuity has different payout options, so be sure to carefully review single life annuity terms before signing up.

List Any Drawbacks of Using a Single Life Annuity

Single life annuities are a good form of diversification to add to your retirement savings plan. Single life annuities can help supplement other income sources such as Social Security, pensions, and personal investments.

Additionally, single life annuity payments from single life annuities can increase each year for inflation. However, single life annuities are not tax-deferred. This means single life annuity payments are fully taxable.

Taxation of single life annuities varies depending on single life annuity types, but single life annuities can be taxed at the single person's marginal tax rate.

Keep in mind single life annuities are not qualified retirement savings vehicles.

Single life annuities can be costly, so it is important to compare single life annuity rates and fees before finalizing single life annuity payments with any single life annuity provider.

The single life annuity payouts can also be rather low.

In addition, single people sometimes find single life annuities to be unattractive as single life annuity providers often charge single fees and single premiums each year that increases with age.

In the end, single life annuities can be a great single life pay plan if single people find single life annuities to be good, affordable options that fill any single life financial gaps.

As with any single-person insurance product, it is important for single people to look over the fine print before settling on single payment plans or signing up for single life annuities.

The Bottom Line

Single life annuities are payments that people must make into accounts for years to receive lifetime payments after retirement.

Single life annuities are lifetime pay-out plans, but people can also choose investment funds as payment methods instead of having their money placed directly into stocks or bonds.

Because single life annuity payments are lifetime pay-out plans, single people can choose single life annuities to supplement whatever income they will receive from other sources after retirement.

However, single life annuities are not tax-deferred, they do not have single sum payouts, and single life annuity providers often charge single people with single life annuity single fees and single premiums.

Single Life Annuity FAQs

About the Author

True Tamplin, BSc, CEPF®

True Tamplin is a published author, public speaker, CEO of UpDigital, and founder of Finance Strategists.

True is a Certified Educator in Personal Finance (CEPF®), author of The Handy Financial Ratios Guide, a member of the Society for Advancing Business Editing and Writing, contributes to his financial education site, Finance Strategists, and has spoken to various financial communities such as the CFA Institute, as well as university students like his Alma mater, Biola University, where he received a bachelor of science in business and data analytics.

To learn more about True, visit his personal website, view his author profile on Amazon, or check out his speaker profile on the CFA Institute website.

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