What Is a Straight Life Annuity?

For many retirees, the biggest financial challenge isn’t saving enough for retirement, it’s making sure that money lasts. That’s where a straight life annuity comes in. This simple yet powerful financial product converts a lump sum of savings into guaranteed income you can’t outlive, offering peace of mind in an uncertain market. Whether you’re nearing retirement or planning ahead, understanding how a straight life annuity works, and how it compares to other options, can help you make smarter decisions about securing lifelong financial stability.

Consider working with a financial advisor as you create an investment or retirement plan.

How a Straight Line Annuity Works

A straight life annuity is a form of a lifetime annuity, which is an insurance contract that provides guaranteed payments to the recipient. It’s mainly used as a retirement vehicle for people to invest in during their working lives, and then collect on in retirement. As with most lifetime annuities, this is a contract that you typically invest in early and collect on later in life.

The defining feature of a straight life annuity is that payments stop upon the annuitant’s death. This means that while you receive income for your entire lifetime, no funds are left for heirs or beneficiaries once you pass away. For retirees without dependents or those primarily focused on securing lifelong income, this trade-off can make sense, but it’s an important factor to consider before committing.

Your payout amount is determined by several factors, including the size of your initial investment, current interest rates and your life expectancy at the time of purchase. Generally, the longer your expected lifespan, the smaller your monthly payments will be, since the insurer assumes it will need to make payments over more years. Conversely, older annuitants or those with shorter life expectancies typically receive higher monthly income.

Since a straight life annuity is designed solely to provide lifetime income, it doesn’t build cash value or include refund provisions. Once payments begin, you generally can’t withdraw additional funds or change the terms of your contract. This lack of flexibility is what allows insurers to offer higher payouts compared to annuities that include survivor benefits or withdrawal options.

A straight life annuity is best suited for retirees who want to maximize their guaranteed income without worrying about leaving money behind. It can serve as a reliable foundation for covering essential expenses like housing, food and healthcare throughout retirement.

Payout Options for Straight Life Annuities

Unlike many other types of annuities, straight life annuities have only one payout option. You can buy straight life annuities in either immediate or deferred form. With an immediate annuity, you begin collecting payments immediately after buying the contract.

With a deferred annuity, you hold and put money into the annuity for a period of time and then begin collecting payments at some point in the future. Deferred annuities almost always pay more than immediate contracts because they repay in part based on the growth of the underlying investment during the deferral period.

Once the straight life annuity enters annuitization, the contract has one payout structure: You collect a pre-defined, monthly payment for the rest of your life. Once you die, the contract expires and issues no further payments.

Good Candidates for a Straight Life Annuity

Like all lifetime annuities, straight life annuities are structured primarily for retirees. This is true for a number of reasons, including the fact that your payments will be minimal with a lifetime annuity that begins significantly earlier than retirement – if you could find someone to sell you that product at all.

In retirement, the classic case for a straight life annuity is someone with no spouse or significant heirs. With a straight life annuity, your spouse will not receive any continued payments after your death. Nor will there be any lump-sum payment to your heirs. This may make straight life annuities an appropriate product for retirees with neither spouses nor heirs to think about.

It can be a good product for households that need a targeted addition to their retirement plans. For example, if you know that you want money to pay the costs of living for one member of the family, a straight life annuity can be a good product to use.

This can be particularly the case if one spouse has more significant medical or other financial needs than the other. Either way, this allows you to plan around a specific stream of income, which can often be exactly what a retirement plan needs.

Alternatives to Straight Life Annuities

While a straight life annuity can provide guaranteed income for as long as you live, it isn’t the right fit for everyone — especially if leaving money to heirs or maintaining flexibility is a priority. Fortunately, there are several types of annuities that offer similar lifetime income benefits with different trade-offs. Here are some common alternatives worth considering.

• Joint and Survivor Annuity: A joint and survivor annuity continues to make payments for as long as either you or your spouse is alive. While the monthly payout is typically lower than a straight life annuity, it ensures ongoing financial support for a surviving partner. This makes it an appealing option for couples who rely on both incomes to meet household expenses.
• Period Certain Annuity: With a period certain annuity, payments are guaranteed for a specific number of years, such as 10, 15 or 20, even if you pass away during that time. If you die before the period ends, your beneficiary continues to receive payments for the remainder of the term. It’s a way to secure predictable income while protecting your loved ones from losing all benefits too soon.
• Refund Life Annuity: A refund life annuity combines lifetime income with a money-back guarantee. If you pass away before receiving payments equal to your initial investment, the insurer refunds the remaining amount to your beneficiary. While the monthly income is slightly lower than a straight life annuity, it offers valuable peace of mind for those concerned about leaving funds behind.
• Deferred Income Annuity (DIA): A deferred income annuity begins payments at a future date, often years after purchase, allowing your investment to grow in the meantime. This type of annuity can provide higher income later in life, making it a useful tool for hedging against longevity risk. It’s particularly effective when used to supplement other retirement income sources once required minimum distributions or Social Security benefits are in play.

Choosing the right annuity depends on your personal financial goals, health and whether you want to provide for a spouse or heirs. Each of these alternatives offers a unique balance between guaranteed income, flexibility and legacy protection. A financial advisor can help you evaluate which option best complements your broader retirement plan and ensures lasting financial security for you and your loved ones.

Bottom Line

A straight life annuity is a contract that makes payments to you for the rest of your life. Then, it expires once you die. It does not make payments to your spouse or heirs. And within a straight life annuity, there are payout options between immediate and deferred annuities. Make sure to choose which payout option fits your financial goals.

Tips for Retirement Planning

• Wondering if you need an annuity as part of your retirement income plan? Consider working with a financial advisor specializing in retirement planning. Finding a financial advisor doesn’t ahve to be hard. SmartAsset’s free tool matches you with vetted financial advisors who serve your area, and you can have a free introductory call with your advisor matches to decide which one you feel is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
• Not sure if you’ll have enough income to sustain your lifestyle in retirement? Check out our retirement income calculator to see if you’re on pace. And if the savings in your 401(k) aren’t going to be enough, consider opening an IRA at a low-cost brokerage to add more investments to your portfolio.

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