What it means
Many pension plans and insurance annuities offer a choice of how income is paid out, and the single-life option is the simplest. IRS Publication 575 describes it as definite amounts at regular intervals for life, with payments that end at death.
FINRA describes the same choice in its guide to retirement payout methods: with a single-life annuity, payments stop when you die, even if you die soon after they start. The guide adds that a joint-and-survivor check is smaller than a single-life check.
That trade-off is the core of the decision. A single-life payout gives the highest monthly check but leaves nothing for a spouse or heir after death, while a joint-and-survivor payout gives a smaller check but keeps paying a second person.
The payer carries the risk of a long life. If you live far longer than average, you keep receiving checks.
If you die early, the payer keeps what is left, and the total you collected may be less than what the plan held for you. FINRA mentions a middle path, a single-life payout with a period certain.
It still pays for your life, but if you die within the stated period, a named beneficiary receives the rest of that period's payments, and the plan will state how the monthly amount changes. FINRA also notes that some employers require a married employee to choose a joint annuity, or to have the spouse sign a waiver before an individual annuity is selected.
In the United States, that spousal consent step exists to protect the spouse. Rules differ in other countries, so check the plan documents.
Tax treatment depends on your cost in the contract: IRS Publication 575 explains that part of each payment may be a tax-free recovery of your cost and the rest is taxable, so ask your plan administrator or tax adviser which method applies. The choice usually cannot be undone once payments start.
Compare the monthly amounts, health, family needs, other income and the payer's financial strength before you decide, because a single-life payout fits best when no one else depends on the income.
In practice
Real-world examples.
Example
A fictional retiree is offered $2,000 a month as a single-life payout, or $1,700 a month as a joint-and-survivor payout. The $300 gap is $3,600 a year. That is the yearly price of keeping income going for a spouse.
Example
A fictional single retiree has no spouse and no dependants. She picks the single-life payout for the higher check. If she dies at 80, no further payments are owed, and no one else is affected.
Example
A fictional married worker picks a single-life payout to get a larger check. His plan requires his spouse to sign a waiver first. Without that signature the plan would not pay the individual annuity.
Formula
Calculation
Annual cost of survivor protection = (single-life monthly payment - joint monthly payment) x 12. With a fictional single-life payment of $2,000 and a joint payment of $1,700, the annual cost is ($2,000 - $1,700) x 12 = $3,600.
Extra income over n years = annual difference x n. At $3,600 a year, the extra income reaches $3,600 x 10 = $36,000 after 10 years and $3,600 x 20 = $72,000 after 20 years.
This only shows how the gap adds up. It is not a rule for choosing, because the joint option keeps paying a spouse for as long as they live, which can be many years after the retiree has died.Case study
Seen in the real world.
This case study is fictional and illustrative. Priya, 65, leaves a company with a pension. The plan offers $2,400 a month for her life only, or $2,050 a month with her husband continuing after she dies. Her husband has his own pension and savings, and they could live on those if she died first.
Without her income, though, their household budget would be tight. They ask the plan to explain the choices in writing. They weigh the $350 monthly gap, or $4,200 a year. They decide the husband's own income is enough, and he signs the spousal waiver the plan requires.
Priya takes the single-life payout. The family keeps a record of why, in case circumstances change. They also set aside part of the extra income each year as a reserve, so that a drop in household income after Priya's death would be less sharp. The names and figures are invented to show how such a decision can be reasoned through.
Watch out
Common mistakes.
- Choosing it for the larger check without asking what happens to a spouse after death.
- Assuming the payments continue for heirs if death comes soon after they start.
- Forgetting that a married person may need the spouse's written consent.
Questions
People also ask.
What happens to a single-life payout when the retiree dies?
The payments stop. Only a period-certain feature would pay a beneficiary afterwards.
Why is the monthly check larger than a joint option?
FINRA says the joint-and-survivor check is smaller, because it must also support a second person.
Is it the same as a straight life annuity?
Yes. FINRA uses both names for the option that pays for the retiree's life only.
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