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 covers just one person. This means no benefits pass 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 than joint annuities, as payments rely solely on the annuitant’s life expectancy.

Consult a financial advisor to determine if an annuity is right for your portfolio based on your financial goals.

What Is a Single Life Annuity?

A single life annuity is just one of several types of life annuities that can help fund retirement.

It’s a retirement income product that provides 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 income payments stop upon the annuitant’s death. This means that beneficiaries and heirs receive no payments 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 and survivor annuities, which cover two lives.

Single life annuities are best for individuals who want to maximize their retirement income and who 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?

A single life annuity can benefit several different types of investors.

Unmarried individuals. A single life annuity can be a good choice for unmarried people because they offer the highest payouts. They make the most sense for single people at or near retirement age.
Retired investors. Those ages 55 to 75 may benefit the most from the guaranteed income of an annuity because it has protection from market movements. Older people in their late 70s and 80s may not have enough years of life remaining for annuities to make sense. This is because annuities have a relatively high cost compared to other retirement income sources.
Couples. 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?

If you're saving for just yourself, a single life annuity can be the perfect choice.

Single life annuities may not be right for everyone:

Married couples. Single life annuities make the least sense for married people, especially those with limited other sources of retirement savings. However, a single life annuity can still be a good choice for couples with other retirement income, depending on their financial situation and long-term needs.
Young investors. 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, this extra time can help smooth out the effects of market fluctuations on their portfolios.
Retirees with a single income source. If other income can support a surviving spouse, a single life annuity might be a good choice. However, if an annuity provides your only retirement income, a joint and survivor annuity may make more sense.
Investors with heirs. Single life annuities also don’t help people who want to leave a bequest to heirs other than spouses. If a retirement saver wants to bequeath assets to children or other relatives, another annuity type with a lump-sum payment or continuing monthly payments to survivors may be a better choice.

Alternatives to Single Life Annuities

Different types of annuities can help address the shortcomings of a single life annuity.

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. The monthly payout will be smaller than that of a single life annuity purchased for the same dollar amount.

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, your beneficiary will still receive payments until that period expires. A typical period for a period certain annuity is generally between five and 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.

How a Single Life Annuity Is Priced

The monthly payout on a single life annuity is not arbitrary. Insurance companies use several factors to calculate how much they can afford to pay you each month while still covering their costs and obligations.

Age

Age at purchase is the most significant driver.

Insurers price annuities based on how many years they expect to make payments. Someone buying at 75 will receive a higher monthly amount than someone buying the same product at 65 because the payment window is likely shorter.

Waiting to purchase can increase your monthly income, though it also means fewer payments.

Interest Rates

Interest rates play an equally important role.

Annuity payouts are closely tied to long-term bond yields, since insurers invest premiums in fixed-income instruments to fund future payments. A purchase when rates are high locks in a higher payout for life. A purchase made in a low-rate environment produces a lower payout that also lasts for life.

The timing of your purchase can have a permanent effect on the income you receive.

Health

Health and life expectancy also factor in, though less visibly in standard products.

Most annuities are priced using population-level mortality tables. Some insurers offer enhanced annuities for individuals with serious health conditions, which can produce higher payouts because the expected payment period is shorter.

Insurer

The financial strength and pricing philosophy of the insurer affect the quote you receive. Two companies may offer meaningfully different monthly payments for the same premium.

Comparing quotes from multiple highly rated insurers before committing is a straightforward step that can make a material difference in lifetime income.

How to Evaluate Whether a Single Life Annuity Makes Financial Sense

Before purchasing a single life annuity, a basic breakeven analysis can help you understand what the product actually costs relative to what it returns.

Breakeven Point

Start with the breakeven point.

If you pay $300,000 for a single life annuity that pays $1,500 per month, divide the purchase price by the monthly payment to find how long it takes to recover the principal. In this case, it works out to 200 months, or roughly 16.5 years.

Buying at 65, you would need to reach approximately age 82 to recoup what you paid in, before accounting for what that capital could have earned if kept invested.

Opportunity Cost

The opportunity cost is the second part of the calculation.

That same $300,000, invested in a diversified portfolio earning a hypothetical 5% annually, would generate roughly $15,000 in income without touching the principal. This is about $1,250 per month, compared to the $1,500 the annuity pays.

The annuity produces more monthly income in this example. However, the invested portfolio preserves the underlying capital for heirs or future needs while the annuity does not.

Longevity

The annuity’s real value shows up in longevity protection.

Past the breakeven point, payments continue regardless of how long you live, while you can eventually deplete a self-managed portfolio. The further you live beyond breakeven, the more beneficial the annuity.

The practical question is not which option pays more in the short run, but whether the certainty of lifetime income is worth sacrificing the flexibility of investing. This trade may be worth making for retirees without a pension, other significant savings or dependents who rely on their income.

However, for those with substantial assets and heirs who would benefit from an inheritance, a different approach may serve them better.

Bottom Line

A couple review whether a single life annuity makes sense for their retirement.

When choosing an annuity, consider your life expectancy, interest rates, fees, insurance company ratings, payment options and tax implications. Single life annuities offer the highest payouts of any annuity type. However, the drawback is that they don’t provide financial support to spouses or other dependents after the annuitant’s death. Other types of annuities can provide post-retirement income to beneficiaries 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.