How Does a Single-Life Settlement Option Work?
- Learn how the single-life settlement option works for pensions and annuities, including how it differs from joint-life settlement and who should consider it.
Single-life payout is a type of settlement option for pensions and annuities. Single-life payout allows you to get the highest possible monthly payout, but it's not the right choice for every family. Below, you can find out how single-life payout works and what to consider when deciding between single-life and joint-life payout.
What Is Single-Life Payout?
Single-life payout describes a pension or annuity settlement that only provides funds to one person. You may also get the option to select single-life payouts if you pay into your employer's retirement benefits scheme.
The single-life payout option provides monthly payments until the account holder dies. At that point, the payments stop. Therefore, if you select the single-life option, your spouse or another named beneficiary can't continue receiving payments after your death.
Single-Life vs. Joint-Life Payout
The joint-life payout option differs significantly from a single-life payout because it allows a named beneficiary to continue receiving payments from your annuity or pension after you die. The payments stop upon the death of your beneficiary. Many providers only allow immediate family members to be beneficiaries of a joint-life pension or annuity.
You'll generally get the choice between single-life or joint-life settlement when you enroll in a pension scheme or purchase an annuity. Which option you choose will likely make a difference to the monthly payment amount. Single-life settlements tend to yield a higher monthly payment because the payments stop when the account holder dies. Meanwhile, a joint-life settlement usually results in lower payments because the payouts continue until the beneficiary's death.
Which Payout Settlement Option Is Best for Couples?
Generally, it's best for couples to select a joint-life payout settlement because it ensures that the surviving partner won't be left without a stable income. However, some couples find that the monthly payout from a joint-life plan is too low to meet their needs.
In this situation, a couple could opt for a single-life payout settlement with a certain term. These plans guarantee payouts for a certain number of years unless you outlive the preset term, in which case payments continue for the rest of your life. For example, if you choose a single-life settlement with a 10-year term and die five years after payments begin, your beneficiary can continue to collect payments for the five remaining years of the 10-year term. The payments will be lower than they would be with a regular single-life plan, but they will still be higher than with a 100% joint-life plan.
Alternatively, your pension company may allow you to select a 50% joint and survivor settlement option. This means that your beneficiary can continue to collect 50% of the original payout amount for the rest of their life after your death. Again, the payments during your lifetime will be lower than a single-life payout, but they will likely be higher than with a 100% joint-life settlement.
How Are Settlement Options Paid?
Many people choose to receive monthly payments from their pension or annuity on retirement. This option provides a stable income stream and can make it easier to manage your finances. However, pensions are often paid at a flat or fixed rate, which means they're unlikely to grow at the same rate as investment savings or match inflation.
Alternatively, your pension or annuity company may offer you the option to receive your payment as a single lump sum. This option could be advantageous if you want to invest your retirement funds to earn interest on the balance. However, it could cause issues if you struggle with money management because you assume responsibility for making the funds last.
Is Single-Life Payout Right for Me?
Selecting the single-life payout option could be a good choice for single people without financial dependents because there is no one left in financial difficulty when the account holder dies. It could also be a good option for couples where both spouses have pensions or annuities to provide for their retirement and wish to receive the highest possible monthly payout during their lifetime. However, single-life payouts aren't such a good choice for people with dependents, because this settlement option doesn't allow payouts to a beneficiary.