Single Premium Immediate Annuities (SPIAs)
A Single Premium Immediate Annuity is the oldest version of an annuity: you hand the insurer one lump-sum premium and—typically within 30 days to one year—begin receiving a contractually guaranteed check for a set period or for life
Key Points
Income starts right away
Payments can be monthly, quarterly, or annually and continue for:
Life only • Life with 10-, 15-, or 20-year “period-certain” • Joint life • Fixed term (5-30 yrs).
Predictable, level cash flow
Fixed SPIAs lock in today’s interest-rate environment; optional COLA riders typically offer 1 %–3 % annual increases (lower initial payout).
Mortality credits boost yield
If you outlive actuarial life expectancy, you may receive more than your premium plus interest.
Partial tax exclusion on non-qualified money
Part of each payment is tax-free return of principal, reducing taxable income until basis is exhausted. Qualified funds are fully taxable.
No investment management or market risk
The insurer manages the reserves; you just collect the income.
Irrevocable
Once annuitized, you generally cannot access the lump sum—choose payout options carefully.
Additional Important Information
Longevity hedge vs. early-death risk
“Life-only” maximizes income but leaves nothing for heirs. Adding a period-certain or refund feature protects beneficiaries but reduces the payout.
Inflation protection costs
Selecting an annual cost-of-living adjustment typically lowers the initial payment by about 15 %–30 %; break-even typically occurs after 12–15 years.
Insurer strength matters
Payments rely on the insurer’s claims-paying ability; We generally recommend that our clients consider carriers that are highly rated
Coverage Summary
Feature
What to Expect
Typical Surrender Charge Periods
3, 5, 7, 10 years (longer term = higher rate)
Guarantees
Principal and credited interest; subject to insurer. Variable annuities are subject to market risk and may lose money.
Free-withdrawal allowance
Most contracts allow 10 % of the account value per year without surrender charge
Taxation
Interest taxed only when withdrawn; ordinary income rates apply. For annuities within a qualified plan, all withdrawals are fully taxable.
| Feature | Immediate Fixed SPIA | Immediate Variable SPIA |
|---|---|---|
| Premium | Single lump sum | Single lump sum |
| Payout Start | 30 days – 12 months | 30 days – 12 months |
| Income Stability | Level (or COLA option) | Fluctuates with sub-account performance |
| Typical Initial Yield* | ~ 5 %–7 % (age- & rate-dependent) varies widely and can change regularly | Varies with markets; no floor |
| Taxation (non-qualified) | Partially tax-free exclusion ratio (NQA only) | Same, but earnings component varies |
| Fees deducted from annuity cash value | None | Fund & M&E fees 1 %–2 %, may vary widely |
| Liquidity | None once annuitized | None once annuitized |
| Longevity Protection | Yes—cannot outlive | Yes, but payment amount varies |
| Who Bears Market Risk | Insurer | Owner |
When might a Single Premium Immediate Annuity (SPIA) be a good choice?
A SPIA may be a good option if you want to turn a lump sum of money into a steady, guaranteed income stream right away—often within 30 days.
In short, a SPIA trades a one-time payment for a guaranteed stream of income. It removes the guesswork from budgeting and can offer financial assurance, especially for those who want stability in retirement. (the amount of the payout may vary with variable SIPAs)
Some factors that may make it appropriate for you:
- You’re retired (or retiring soon) and want income you can count on for life.
- You have a chunk of savings and want to turn it into reliable monthly income.
- You’re worried about outliving your money and want the assurance that the checks won’t stop.
- You don’t want to manage investments anymore and prefer simplicity.
- You value guaranteed income over leaving a large balance behind.
Bottom Line
A SPIA converts a portion of your nest egg into an immediate income stream—and may be an efficient solution for lifelong income if you can trade liquidity for a level of certainty.
Consider payout options, inflation riders, and insurer quality before writing the check.
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