Immediate Annuity

What is it?

An immediate annuity is also called a Single Premium Immediate Annuity (SPIA). This type of annuity is a type of insurance contract that is purchased with a lump-sum of money which offers you guaranteed income for the rest of your life or for a set amount of time. Typically income can start as soon as 1 month or 1 year depending on the contract.

How Do SPIAs Work?

SPIAs are an annuity contract that is purchased with an upfront lump-sum of cash. In exchange, an insurance company will guarantee you a regular income (much like a pension or Social Security) for your lifetime or for a set number of years. Typically within one month of you deposit, the SPIA starts paying you a regular income. 

How do you finance a SPIA? Most SPIAs are purchased with a 401(K) or IRA rollover. This can be done after age 59.5 or if you are changing employers and need to move your 401(K) from your previous employer.

If you are wondering why anyone would ever chose to purchase a SPIA, there are a few good reasons. The insurance company that accepts your contract will pay back your deposit plus interest, so over the course of the contract, you will receive more money than you initially deposited. Secondly, most SPIAs have contract bonus, typically a percentage of the initial deposit or a flat amount.

Benefits of a SPIA

SPIAs can be an ideal retirement vehicle for people who need income right away

Drawbacks of a SPIA

There are trade-offs with all retirement accounts, SPIAs are no different

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