What Is Single-Life Payout
An annuity or pension that pays out to only one person is known as a single-life payout. Single-life payout is one of two payout options an employer uses to distribute retirement benefits. At retirement, a retiree has the choice of either a single-life payout or a joint-life payout. A single-life payout means only the employee will receive the payments for the rest of his/her life, but the payments stop upon his/her death.
- A single-life payout is an annuity or pension option that means that payments will stop when the annuitant dies.
- In a joint-life payout, payments continue after death to the annuitant's spouse.
- Single-life payouts are generally larger on a per month basis since the payments stop upon the death of the annuitant.
Understanding Single-Life Payout
In contrast to the single-life payout option, a retiree can also choose a joint-life payout option that will continue payments after the retiree's death to someone else, such as a spouse. Some plans restrict the survivor benefits to immediate family members. Typically, the periodic payment from a joint-life payout option will be less than the amount in a single life payout, because it continues after death.
Single-Life Payout Example
For example, after 15 years of service at company XYZ, an employee retires at age 62. Under the company's pension plan, the employee is entitled to $1,500 a month for life as a single-life payout. The payments will continue until his or her death, then stop. The employee can also opt for a joint-life payout. The monthly check will be smaller at $1,080, but after his or her death, a spouse can continue to collect the monthly payment until his or her death.
The amount of the payment to the spouse was determined by using his or her age and estimated life expectancy using actuarial tables. Choosing which type of payout to take requires careful thought because under most pension plans, once the choice is made there's no going back. In general, men collect slightly higher single-life payouts because they have shorter life expectancies than women.
Many plans offer a lump-sum payout in lieu of monthly payments. The lump-sum payout assumes you can invest the money and create your own stream of payments. It's not a good choice for people who can't keep their spending under control, because once the cash is gone, there are no payouts to come. On the other hand, pensions are generally fixed, and even if inflation is only 3% a year, in 20 years the buying power of that pension will be cut in half.
Most couples choose the joint payout option over the single-life for the simple reason that they want the surviving spouse to maintain their standard of living. It's false to assume that when one spouse passes expenses will be cut in half. Many expenses, such as taxes on a home, utilities, etc. don't go down at all.