Joint Life Annuity Explained: When Could a Single Life Annuity Be the Better Choice for Married Retirees?

Retirees are finding it’s getting harder and harder to provide for spouses during retirement. I’ve run into a lot of couples who’ve been affected by the end of file and suspend feature, which allowed spouses to leverage the higher earner’s wages in Social Security payments. In a lot of these cases, one spouse earned significantly more than the other, so losing that provision was a big hit.

When file and suspend ended in April of this year, many retirees were left wondering what other ways they have to provide for their spouse now and in the future. To address this problem, we know of many couples who chose to buy a joint annuity as a way of ensuring each spouse would always have a steady means of income.

But for some, it may actually be a wiser decision to get two separate annuities, or even find funding through other retirement products. Whether you should buy a joint annuity or multiple single ones should be decided on a case-by-case basis, but there are some general rules of thumb to consider when you’re first weighing your options.

The Difference Between Joint and Single Life Annuities

The “joint” in joint annuity is a bit misleading because, in a joint annuity, the primary annuitant/owner will receive the annuity income payments until he or she passes away, at which time the second spouse will begin receiving either the same or a reduced payment. It doesn’t make payments to both parties at once, but is instead contingent on survivorship.

In a single life annuity, when the contract holder passes away, a number of things could happen. For instance, if the client is receiving lifetime-only income due to annuitization of the contract, the annuity ends and there is no remaining benefit. If the client has selected a lifetime annuitization option with a period certain of, say, 10 years, and dies before those 10 years are up, the contract’s beneficiary will receive the remaining funds due to complete the 10 year payment period. Another scenario is if the client has not annuitized the contract, but is instead taking withdrawals from the annuity, through the purchase of an optional income rider. In this situation, the annuity will have wording in the contract that spells out what the death benefit to the client’s beneficiary will be.

As is true with most financial products, there are trade-offs to be considered. The older you are when you buy an annuity, the higher the risk is that you may pass away before getting your full principal back, if you elect to take payments under the lifetime annuitization option. So the annuity income payments you receive under this scenario are likely to be higher than  those you may receive with a period certain or by taking withdrawals due to an income rider, due to this risk.

Consider a case in which a couple has a significant gap between their ages. The payout on a joint life annuity is calculated based on the ages of both people in the couple. Someone who is expected to live longer will have a lower income payout. When the ages are very far apart, the payout on the annuity will be less because the younger spouse brings the payout amount down. In an instance like that, it may be wise to consider a single life annuity

Another instance would be when you’re dealing with a couple who make similar amounts of money. I know from experience it’s not uncommon to run into couples in their fifties who are both high wage owners with significant assets. In this case, single life annuities for each may be a better option because beneficiary benefits may not be as important if the couple has other assets or legacy plans in place.

Often a good candidate couple for a joint life annuity is a couple approaching retirement, who are around the same age, and in which one has acted as the primary breadwinner for most of the marriage. In this case, the joint annuity will help maximize the income payout on your annuity. If you’re not in that situation, or you don’t want the cost of maintaining two annuities, there are other alternative options to consider.

A great way to decide what’s right for you and your partner is to get together with an insurance professional who can look at your overall financial picture and make a recommendation. At Retirement HQ, we’ve been helping couples build their retirement strategies together by giving them personalized financial guidance. See some of our testimonials to see what these financial professionals can do for you.