What is a Single Premium Immediate Annuity or SPIA

What is a Single Premium Immediate Annuity or SPIA?

A single premium immediate annuity (SPIA) is an insurance contract where you make a one-time lump sum payment and start receiving guaranteed income right away, usually within 30 days to a year. The income can last for a set period of time or for the rest of your life, providing a steady and predictable stream of cash flow. Clients can also choose from several beneficiary options, such as refund or period-certain features, to ensure loved ones receive remaining payments if you pass away too soon.

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Retirement should be relaxing. It should be filled with golfing, or a cruise now and then. Who wants quarterly meetings with a financial planner to go over spreadsheet full of sequence risk or guesses about longevity, always wondering how long your money will last. If the idea of managing withdrawals and market swings makes you want to keep working forever, you should learn about the Single Premium Immediate Annuity, or SPIA (pronounced Spee Yuh). It is the financial equivalent of “set it and forget it.”

What is a SPIA

A SPIA is a fancy way of saying: You give an insurance company a lump sum of money, and they start paying you a guaranteed income almost immediately. “Immediately” here usually means within 30 days or up to one year. It’s called a single premium because you pay once, not in installments like a gym membership you forget to cancel.

So, you hand over your money and the insurer is contractually obligated to pay you a set amount of money every month (or every year if you choose) for the rest of your life.

How Does a SPIA Work?

The amount they pay you depends on a few things:

Your age -The older you are, the higher your payout. Old age does have perks!
Payout option Your payments can be for your life only, your life and your spouse’s life, or for larger net worth clients, you can even set it up to pay your lifetime and your child’s lifetime after you die. You can also choose a cash refund or payments for a specific time period.
Insurance Carrier Every insurance company will offer you a different payout for your lump sum of money. That’s why it is important to work with My Annuity Agents to make sure you are getting a quote from all the carriers. My Annuity Agents recommends buying lifetime income products from carriers with A+ financial ratings or higher because you may live a long time and you want the insurance company to be around to pay you for your entire life.

Payout Options: Choose Your Adventure

SPIAs aren’t one-size-fits-all. You pick how you want to be paid:

Life Only

Highest payout, but when you die, the checks stop. Harsh, but true.

Life with Period Certain

You get income for life, but if you die early, your beneficiary still gets payments for 10 or 20 years. Generous and slightly less creepy.

Joint Life

Pays as long as either you or your spouse is alive. It’s romantic, in a tax-efficient kind of way.

Fixed Period Only

You don’t want lifetime income, just a guaranteed paycheck for, say, 10 years. Like a pension with an expiration date.

But What’s the Catch?

Ah, yes. The fine print:

1. No take-backs.
  Once you buy a SPIA, you generally can’t get your money back after the contract review period. You’ve committed. It’s like getting married without the arguments over the thermostat.
2. No liquidity.
  Need cash for a surprise kitchen remodel or your grandson’s destination wedding? You’ll have to use something else. The lump sum is locked in. In the case of nefarious children, this may not be a bad thing.
3. Inflation
  Most SPIAs have level payments, so $1,500/month might feel great now… but in 20 years, it will not have the same spending power. Though some contracts do offer COLA (cost of living adjustments) My Annuity Agents doesn’t recommend using that feature because your initial payment will be much smaller. Keep some money aside to purchase another income annuity in the future when inflation eats away at your buying power, but don’t give up a higher payout today to solve for inflation int eh future. Contact My Annuity Agents if you want to discuss this strategy.
4. Death Risk
  If you choose a life-only payout and pass away early, there’s no refund to your family. It’s a gamble. But if you are not worried about your beneficiaries this may be a risk you are willing to take. If not, My Annuity Agents can structure your SPIA to make sure your beneficiaries get your money if you die too soon.

When Does a SPIA Make Sense?

You should consider one if:

It also fits beautifully into a strategy called income flooring, where you cover your basic expenses (housing, food, healthcare) with guaranteed income sources like Social Security plus a SPIA, so you can invest the rest of your assets with more confidence.

Final Thoughts: Safe, Simple, and Slightly Boring (But in a Good Way)

A Single Premium Immediate Annuity won’t make you rich, but it will pay you every month, no matter what the market is doing, and no matter how long you live. If you think a SPIA is right for you, contact My Annuity Agents to make sure you are getting a quote from multiple insurance companies with a strong financial rating.