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One way to guarantee you will not outlive your savings is with an annuity. An annuity is a contract you make with an insurance company in which you give the company a lump sum of money and it promises to send you a monthly check for the rest of your life. But all annuities are not created equally. Some will continue to pay lifetime benefits to your spouse after you die. However, a single life annuity will only provide payments to one person. The company will make no further payments when you die.
The concept behind a single life annuity is pretty straightforward. You give an insurance company a lump sum of money, and it promises to send you a monthly check for as long as you live. A 65-year-old man for example, could invest $100,000 in a single life annuity and immediately begin collecting around 7 percent or about $7,000 a year for life, which is nearly twice the 4 percent annual withdrawals that most advisers recommend people stick to in order to avoid outliving your nest egg. Annuities can make a higher payout because they are returning some of your principal investment along with the interest. Also, because you have pooled your money with other investors, people who die early end up subsidizing others who live longer.
If someone buys a single life annuity and passes away shortly after making the investment, the remainder of the money usually goes to the insurance company. Single life annuities are not for everyone. Young people in their 20s and 30s are often better off investing their money in the stock market because they have decades to recover from any stock market declines. People in their late 70s and 80s should typically avoid annuities because they might not live long enough to realize the benefits. The ideal time for buying a single life annuity is from age 55 to 75.
Single life annuity payments are usually the highest of all annuity payments because the insurance company is only obligated to pay benefits to one person. Single life annuities for men often pay slightly more than single life annuities for women because women have a longer life expectancy. Annuities that guarantee lifetime payments to a husband and wife usually offer the lowest monthly payments because of the obligation the insurance company assumes when agreeing to pay lifetime benefits to a surviving spouse.
A single life annuity does not usually provide death benefits to survivors. But some insurance companies offer contracts that make it possible to set up a single life annuity to pay beyond your death. In some cases, if someone with a single life annuity dies before the end of a certain period of time -- for example, ten years -- the insurance company continues making annuity payments to a beneficiary for the remainder of the period.
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