A single premium immediate annuity (SPIA) is one of the simplest forms of annuity contracts and is a guaranteed, reliable source of income. When you choose to open an SPIA, you begin by purchasing the SPIA with a large lump sum of money and begin receiving a monthly payment either immediately or within a designated amount of time. With this type of annuity, you can choose whether you’d like to receive payments for life, set up a payment period or both.
A single premium annuity is an annuity purchased with a large upfront payment. This annuity will begin to pay you back the purchase price plus interest in installments. The payments you receive may either start immediately or within a designated amount of time.
SPIAs are usually funded through a deposit from a savings account or retirement plan, including a 401(k) or an individual retirement account (IRA).
Single premium immediate annuities are the oldest type of annuity, dating back to the Roman Empire, but only 10% of annuities are purchased today. Today the most common type of annuity is the deferred annuity, which provides more time for investment growth and leaves a contribution window. However, when looking to earn a consistent, guaranteed income every month, nothing beats SPIAs. These annuities are built to generate income so you can provide for yourself and your family. SPIAs allow you to see income quicker as well. Other annuities, such as the deferred annuity, build value for several years and even decades before you receive a withdrawal.
Usually, SPIA payments start immediately. However, this can change based on the annuity company you choose. Payments may also vary in size depending on many elements. For example, how long you wish to receive the payments, if you would like the payments to keep up with inflation and how you would like the rate of return calculated.
Payments can be scheduled for a set time or they are guaranteed for the rest of your life. However, when you choose a longer-term payment to be spread out, the monthly payout may decrease.
If you opt for an inflation rider, you may have to pay a fee and start with smaller annuity payments.
Certain annuity companies allow customers to choose between a variable interest rate based on the market or a fixed interest rate. Whichever you choose could lower or raise the amount you receive per month.
With each of these factors weighing in on your SPIA payments, we highly recommend having a financial advisor as well as reading carefully over the annuity contract you sign.
One of the biggest advantages of a single premium immediate annuity is that it is simple and easy to understand. You tell the annuity company how much you would like to deposit and the company tells you the income you will receive monthly in return. There are no investment decisions and little to no uncertainty.
At Care Financial, we often find that many retirees are afraid of running out of money due to the unpredictability of the market, healthcare, inflation and lifespan. On the brightside, SPIAs create a guaranteed stream of income for you and your family to fall back on during tough times. They even offer some inflation protection so you don’t have to worry about how far you can stretch your dollar.
SPIAs have fewer and lower annuity fees than other annuities due to their simplicity. Deferred annuities typically have account management and investment fees that lower the initial deposit, but, lucky for us, SPIAs have little to no fees so more of your deposit goes to your retirement and less of it goes to the handlers.
At Care Financial, we want to help you set up your single premium immediate annuity, but we understand the questions and concerns that come with big decisions such as this one. If you have more issues that need to be addressed, would like to browse other options or would like to set up a single premium immediate annuity today, please contact our office and our financial experts would be happy to speak with you or set up an appointment.