SPIAs Explained: How to Get Money for Life


If you’re looking for a safe, guaranteed way to generate retirement income, a SPIA will do just that. 

SPIAs allow you to turn savings into guaranteed monthly payments that can last the rest of your life. 

They can be a great retirement tool, but they aren’t a right fit for everyone. Keep reading to find out more about guaranteed income payments from SPIAs. 

What Is a SPIA?

A SPIA is a single premium immediate annuity. Other names for this are income annuities or immediate annuities.

Like other types of annuities, it’s a contract between you and an insurance company designed for income purposes. 

They differ from other annuities in that you deposit a large, single lump sum into it, and they are NOT funded with smaller payments over years. 

This means you need to have a large sum of money saved to purchase a SPIA. 

With SPIAs, you begin taking income immediately – usually within 30 days to a year after depositing the money. 

Another way they differ from other annuities is that they often earn lower rates of return because they can’t take on as much market risk as other annuities. 

SPIAs are one of the simplest annuities to understand because they resemble income from pensions and/or Social Security.

But, like all financial products, you still need to do your homework and read AND understand the details of the contract before you sign. 

What Are SPIAs Used For? 

When set up properly, the income from a SPIA can be for the lifetime of the individual or jointly covering both husband and wife. 

Many retirees move some money from their IRA or 401(k) to SPIAs as a direct rollover for tax-deferred growth, as they are only taxed each year as payments come out.

How Much Income Can I Expect to Receive from a SPIA?

The income amount you receive is based on the age and sex of the insured, the amount of money used to purchase the annuity, and the selected payment option.

Let’s take a look at the payout options available: 

*Lifetime ONLY – Since it is based on your life expectancy only, it provides the highest payout possible. If you set this up and die in 3 months, the contract is over. No payments are made after your death. However, if the contract is joint, and you die a year after setting this up, the payout continues for the life of your spouse.

*Life and Period Certain – This provides a lifetime payout based on your life expectancy, but the payout is guaranteed for the number of years chosen (like 10, 20 years).

*Life with Cash Refund – This option offers a lifetime payout, but, if you haven’t received your principal payment back in income at the time of your death, the difference left is refunded back to your estate. This means you (or your loved ones) at least get your initial money back.

*Fixed Period (or Period Certain) – The payout continues for a fixed period of time, chosen at issue of contract. The period can be as low as a 2-year payout. Some insurers will allow for 5, 10, 13 year payouts – this option allows for customization based on your needs and specific situation.

Here’s an example of how people use this option: I had a client years ago with a lot of money in savings, earning nothing. He and his wife had a 0% car loan for 5 years. They decided to put that money in a SPIA to pay it off. Remember, a SPIA  puts the interest of the 5-year period upfront, then divides out the payments. So this client was able to pay off their car loan and make some money doing it.  

Advantages of SPIAs

Simple – You decide how much income you want and for how long a period of time, and the annuity company tells you how much you need to deposit to meet your goal. 

Guarantees – When you set up a SPIA, you set up a guaranteed income stream for the term chosen (lifetime, certain period of years, life with cash refund, or fixed period). 

Predictability – The income from a SPIA provides many people peace of mind knowing each month that your income is predictable and can pay your expenses without draining other assets.

Disadvantages of SPIAs

Loss of Liquidity – Once your lump sum premium has been deposited into a SPIA, and payments begin, there are usually no liquidity options in case you need funds for an emergency. Some SPIAs have a one-time lump sum payout, but it will change the income payouts for the future of the contract.

Loss of Control – Once your income payments have begun from a SPIA, you now have no control of your money. The money will pay out according to how the contract is written. (Again, another reason you need to fully understand the contract BEFORE you sign.)

Loss of Purchasing Power – Lifetime income from a SPIA may not keep up with inflation. An option to offset this is to purchase an INFLATION (or COLA) rider, but it will cost a fee. Some companies offer this – some don’t. And you’d have to set up this option when you set up the SPIA contract.

Who Are SPIAs Right For?

Like all types of annuities, deciding whether a SPIA is right for you depends on…well, YOU – your specific situation, needs, and goals. Here are a few reasons people purchase SPIAS: 

#1 Concerned You Won’t Have Enough Income In Retirement 

SPAIs guarantee income for life, so if you don’t have enough guaranteed income coming in from other sources, such as Social Security, it might be right for you. This way, you can have security knowing your expenses are met for the rest of your life. 

#2 You Need Money Now 

SPIAs pay out almost immediately (usually within 30 days) after signing the contract. If you need money now and want to secure guaranteed income payments for life, then SPIAS make sense. 

#3 You’re Worried about Market Uncertainty
If you are worried about market uncertainty, SPIAs help hedge against this and provide security. Yes, you can still have money in the market, but, if you have a SPIA as well, you won’t have to worry as much about risking your retirement savings when you need it the most should the market drop. 

Who Are SPIAs NOT Right For? 

While SPIAS are a retirement tool that can generate lifetime income, they aren’t right for everyone. 

#1 You Need or Want Your Savings Accessible 

Once your lump sum premium has been deposited into a SPIA, and payments begin, there are usually no liquidity options in case you need funds for an emergency

Some SPIAs offer a one-time lump sum payout, but you will have to pay a surrender charge.

This is why SPIAs aren’t a good fit for anyone who wants or needs liquidity and immediate access to savings. 

#2 You Don’t Need the Money Now

If you are still working and have time until you need the money, SPIAs probably aren’t a good idea. 

SPIAs are held in more conservative investments. As a result, your savings doesn’t grow like it does with other types of annuities, such as variable annuities

In addition, if you already have enough guaranteed retirement income, SPIAs may not be the best option for you. 

[Related Read: Variable Annuities Explained

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