What Is a Straight Life Retirement Annuity?

You've probably heard commercials saying it's never too early to start saving for retirement. If you've already started, or will soon, chances are you'll have to choose how to get at that money when you retire. If you take large cash withdrawals, you might outlive your retirement fund. That's way some people invest in a straight life annuity. When it's finally time to retire, the investment will start paying out and keep paying out. It will give you an income as long as you live.

How it Works

You can start a straight life annuity at an insurance company. All it'll need is a lump sum of cash. It will put that away for you and give you the paperwork to guarantee you'll get it back as regular income. Most of the payments are monthly, and the amount depends on your age and long term interest rates. If you wait until you're older, you'll get a higher monthly income because the insurance company figures you have less time to live.


You'll have plenty of choices to make the straight life annuity fit your needs. You can set up a joint annuity, which will pay off until both of you are history. The income will be lower than a single annuity, but it'll last longer since it's based on both lives. You can add an indexing feature where your income goes up every year to keep up with the cost of living, and you can cut down on the amount after your spouse dies.


Straight Lifes are all about security and consistency. You'll have no investment decisions to make, and other people will have to worry about wild stock market changes since your income is guaranteed. If you're thinking ahead and like the idea of always having some money coming in for daily expenses, this could be the plan for you.


A major drawback is you could die soon after you get the annuity. If that happens, your spouse or heirs won't see a dime. In fact, you could say in a dark way the insurance company is counting on that. A straight life annuity also isn't your thing if you're into liquidity and controlling your investments. The income and interest rates are locked in from the minute you buy one.

Tax Treatment

How you'll pay tax on your straight life annuity income depends on the source of the money. If you buy a straight life annuity with 401(k) or traditional IRA money, you'll pay tax on all your income at ordinary income rates. If you use after-tax money, like a savings account or qualified Roth IRA withdrawal, only the interest earned inside the annuity is taxable. It will be spread out evenly to your life expectancy in your income payments.

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About the Author

Philippe Lanctot started writing for business trade publications in 1990. He has contributed copy for the "Canadian Insurance Journal" and has been the co-author of text for life insurance company marketing guides. He holds a Bachelor of Science in mathematics from the University of Montreal with a minor in English.