What Is a Joint-Life Payout?

The term joint-life payout is a payout structure for some retirement accounts which allow the account holder to name an additional beneficiary who receives the payouts in the event of their death. The beneficiary is usually required to be a surviving spouse. This ensures that the surviving spouse still has a form of income after the account holder dies.

The option to choose a joint-life payout can be important to consider if it is offered. It may be found in some employer-sponsored retirement plans, pensions plans, and with some annuities. Joint-life payouts may also be associated with some insurance policies.

Key Takeaways

  • A joint-life payout is a payout structure that allows the account holder to name a beneficiary who receives the payouts in the event of their death.
  • Joint-life payouts help to ensure a surviving spouse still has a form of income after the account holder dies.
  • These kinds of payouts often come with higher fees, which can lower monthly payments.

How Joint-Life Payouts Work

Choosing a payout option is an important decision many account holders must make for their retirement accounts. When the payments are calculated by the provider, they are based on the life expectancies of both the retiree and the survivor. Some plan providers may restrict the survivor to be a spouse, or possibly a direct relative of the account holder.

Joint-life payouts give financial security to people who are dependent on their spouse or those who have no income after their spouse dies. That's because they are a guaranteed source of income. The benefits are first paid to the account holder during the course of their life. After he or she dies, any remaining benefits are paid out to the surviving beneficiary as long as they remain alive.

But there is one caveat: joint-life payouts often come with higher fees, which can lower monthly payments. Survivor benefits also tend to be much lower than those paid out to the retiree.

Because joint-life payouts come with higher fees, they may reduce your monthly payments.

Special Considerations

If you have a retirement account, annuity, or another type of investment product that has the option of a joint-life payout, you may want to consider all the important factors that can affect your payouts. For retirement accounts, do the fees substantially decrease the payouts? If so, perhaps a standard savings plan into a separate account vehicle for passing along after death could be a better option.

With joint-life insurance policies, premiums and estimated payouts are the key considerations. There can be many "what if" scenarios to consider with joint-life insurance policies—especially when you get older. What if both members of a couple die at the same time? Can the payout be passed to other beneficiaries? Could the couple get more coverage if each had an individual life insurance policy? What if a couple separates?

Often, the best thing to do is talk with a financial advisor who can run some of the numbers and provide the best advice based on different scenarios.

Joint-Life Payouts vs. Single-Life Payouts

Some retirement account vehicles default to a single-life option—also called life-only payouts—unless otherwise stated. In some cases, this may be the only option offered. The payouts stop when the original beneficiary dies, and do not continue being paid out to the surviving spouse. Because there's no stipulation that the payments continue after the account holder dies, payouts tend to be larger. This is common in pension plans.

Single-life payouts are generally a great idea for single people, anyone who doesn't have children, or for someone whose spouse may not need the extra income. But there's one important caveat to a single-life payout that you don't have with a joint-life payout: if you die shortly after you start getting your payments and have heirs, the company is not likely to pay whatever is left of the principal balance.

Example of Joint-Life Payout

Here's a hypothetical example of a joint-life payout. Let's say Mark wants to supplement his retirement income by taking out an annuity—an investment plan that will pay him regular monthly payments. When he buys the plan, he makes sure it comes with the option of a joint-life payout. If he amends his contract to include it, his spouse will be able to receive any remaining annuity payments after he dies even though the investment is in his name.