When it comes to retirement planning, there are a lot of different options to choose from. One option that you may have heard of is the straight-life annuity. But what is a straight life annuity, and how does it work? This guide will discuss the basics of the straight-life annuity and help you decide if this is the right retirement plan for you!
What is a Straight Life Annuity?
A straight-life annuity is a type of annuity that provides a fixed, steady income stream for an individual’s lifetime. It is a long-term, tax-deferred investment product that can provide guaranteed income for the rest of someone’s life.
A straight-life annuity is an ideal choice for individuals looking to guarantee themselves a secure source of income for the rest of their life, particularly those who are about or already retired. By forming a contract with an insurance company, you can liquidate your assets into one lump sum payment or several installments and earn assured payments in return. This cash flow will start immediately, according to your preferences and personal needs – instantly or at some point in the future.
One of the main features of a straight-life annuity is that the payments received are fixed and cannot be changed by the individual. This is beneficial if the individual wants to avoid the volatility of other investments, such as stocks and bonds, and be assured of a steady income. Additionally, because annuities are tax-deferred investments, they can provide a more excellent value than many other investment options.
Sometimes, an individual can also opt for a joint life annuity. This type of annuity provides an income stream for the individual and their partner. When the primary income recipient passes away, a portion of the annuity payments will continue for the surviving partner’s lifetime.
When considering a straight-life annuity, it is essential to weigh the cost of the annuity against the benefit of the steady income. Different annuities are available and can be tailored to an individual’s specific needs. Additionally, it is essential to consider the terms of the annuity contract, the insurance company’s ratings, and the individual’s financial goals when choosing an annuity.
Straight Life Immediate Annuity
A straight-life immediate annuity is a single-premium immediate annuity (SPIA) immediately annuitized on a straight-life payout. Annuitization is mandatory.
Pros And Cons
- One of the main benefits of the straight-life annuity is that it provides a guaranteed income for life. As a result, this can be an excellent option for people worried about running out of money in retirement.
- Another benefit of the straight-life annuity is that it can help you keep your taxes low. With this type of annuity, the payments you receive are usually taxed at a lower rate than other types of income.
- One downside of the straight-life annuity is that you will not have access to your money if you need it for an emergency. In addition, once you start receiving payments from the account, you cannot make any withdrawals.
Straight Life Fixed Annuity
A straight-life fixed annuity is a deferred fixed annuity or multi-year guaranteed annuity (MYGA) that is annuitized on a straight-life payout in the future. Annuitization is typically optional.
Straight Life Fixed Index Annuity
A straight-life fixed index annuity is a deferred fixed index annuity that is annuitized on a straight-life payout in the future. Annuitization is typically optional.
Straight Life Variable Annuity
A straight-life variable annuity is a deferred variable annuity that is annuitized on a straight-life payout in the future. Annuitization is typically optional.
Alternatives to Straight Life Annuities
The Guaranteed Lifetime Withdrawal Benefit (GLWB) is a popular alternative to a straight-life annuity. This allows the annuitant to receive for the rest of their life, like a straight life policy, with more liquidity, interest-earning potential, and a death benefit for beneficiaries.
If you are looking for an annuity that will provide payments as long as you live, a straight-life annuity may be the right option. Request a quote below to determine how much this type of annuity would pay each month and see if it fits into your retirement plan. Remember, when you buy an annuity with a straight life payout, there is no benefit if both annuitants die prematurely. So make sure you understand all the details before making a decision.
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Frequently Asked Questions
An Individual Who Purchases A Life Annuity Is Given Protection Against?
In a life annuity, the payout is guaranteed for life and protected against outliving an income during the individual’s lifetime.
Does a straight-life annuity have a beneficiary?
Yes and no. A straight life annuity income disbursement, distributed through annuitization, does not have a beneficiary, whereas an income payment from a guaranteed lifetime withdrawal benefit (GLWB) will possess one.
Does a straight-life annuity have a death benefit?
Yes and no. A straight life annuity income disbursement, distributed through annuitization, does not have a death benefit. In contrast, an income payment from a guaranteed lifetime withdrawal benefit (GLWB) will possess a death benefit.
What is the difference between a straight life annuity and an annuity certain?
The main difference between a straight life annuity and an annuity certain is the length of time during which the recipient will receive payments. With a straight-life annuity, payments are made as long as the recipient is alive. With an annuity certain, the recipient is guaranteed payments for a specific period of time, regardless of how long they live.
Can you outlive a straight-life annuity?
No, you can not outlive a straight-life annuity. The income payments are contractually guaranteed to pay an income until the annuitant’s death.
How long does a straight-life annuity pay?
A straight-life annuity pays a fixed amount for the remainder of the annuitant’s life.
How are straight life annuities taxed?
Straight life annuities are taxed at the recipient’s marginal tax rate, with some exceptions.
Is a straight-life annuity tax-free?
No, a straight-life annuity is not tax-free unless the contract is setup as a Roth IRA.