After I retire, I’ll start collecting my pension benefits. Is it better to elect a single life annuity or a joint and survivor annuity?
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Asked January 28, 2013
As the name implies, single life annuities are designed to provide income for a single person for the remainder of their lifetime, while joint or survivor annuities take account of leaving a loved one behind who depends on the income you can provide. This is not to say that a married person should never choose a single life annuity, but you must weigh the advantages and disadvantages to determine which method works best for you.
In order to provide you with the best answer, it is necessary to ask whether your spouse has a suitable means of support after you have passed away. If your spouse is receiving a similar benefit from another source, then choosing a single life annuity would create more income for the both of you while you are living. If your spouse depends on your income, then a single life annuity would create a definite financial hardship if you should die.
A single life annuity provides you with higher benefit payments for the remainder of your life than a joint or survivor annuity. The drawback is that a single life annuity terminates on your death. With a joint or survivor annuity, you would receive lower payments for the rest of your life, but the payments would continue for the life of your spouse even if you pass away.
If you are hoping to make the most of your retirement, you could elect a single life annuity, and purchase a whole life insurance policy as to establish benefits for your spouse after you die. This would allow you higher regular annuity payments that could be applied to enjoying your golden years without putting your spouse through a hardship if you pass away first. For even better protection, life insurance can be purchased with a survivor clause as well, so that the policy pays out when either party passes away.
It is still a good idea to set up structured payments, even on a life insurance policy. By naming a trust fund as the beneficiary, the proceeds of the policy will avoid taxation as part of the deceased person's estate. The trust could than make regular payments to the sole survivor, providing them with a source of income for the rest of their life.
Answered January 28, 2013 by Anonymous