Single Premium Immediate Annuity (SPIA)

A Single Premium Immediate Annuity (SPIA) is a financial product that provides a guaranteed stream of income for life in exchange for a one-time, lump-sum payment. Unlike deferred annuities, which accumulate value over time through recurring premiums, SPIAs begin disbursing payments almost immediately, within a year of purchase. These annuities are popular among retirees for their simplicity, predictability, and lower fees compared to other annuity types.

Key features of SPIAs include:

• Immediate and guaranteed income

• Fewer fees and lower complexity

• Potential for large contributions without the limitations of other retirement plans

• Customizable payout options, such as single-life, joint and survivor, or period certain annuities

• Potential tax benefits depending on the funding source (pre-tax or after-tax dollars)

  
  
  
  

SPIAs are beneficial for retirees seeking reliable income, especially in higher interest rate environments. They help mitigate market risk and can include riders for additional coverage, such as long-term care. However, SPIAs involve trade-offs, including the loss of liquidity and control over the lump-sum payment, and potential issues with inflation if not properly adjusted. "The use of a Single Premium Immediate Annuity (SPIA) can be very advantageous in the higher interest rate environment we find ourselves in today. Furthermore, if you come across a client who is seeking portfolio protection and consistent payments, as our firm did, then a perfect synergy forms. Our client was concerned about the current market volatility and the potential impact of her hereditary health risks. After building her financial plan, we concluded that a portion of her tax-deferred IRA could roll into a SPIA. In doing this, we mitigated her risk by reducing market exposure and introducing a constant stream of income. Because of the higher interest rates we are seeing today, her current monthly payments will not only keep up with inflation but slightly beat it in the next few years as inflation returns to the status quo.

We also added a long-term care rider policy to address her health concerns. Now, if there comes a time when her health declines, she will have increased supplemental income to tackle this costly burden. The peace of mind she received from the use of the SPIA based on her circumstances was invaluable, and she could not have been more grateful." - Anthony DeLuca, CFP

Overall, SPIAs provide a straightforward solution for retirees needing predictable income, but require careful consideration of personal financial goals and comparison of offerings from different annuity providers to ensure the best fit.