Single Premium Immediate Annuity

Single Premium Immediate Annuity (SPIA)

Client Risk Profile: High

Protection Level: High

Funding Source: Cash, CDs, Fixed Income

A single premium immediatte annuity (SPIA) is simple income annuity, perhaps the most well-known and least liked of the annuity types because it requires the purchaser to “annuitize” their assets in return for income payments to begin immediately (within a year of purchase usually). This means if the annuitant dies before life expectancy, their assets will subsidize the benefits of other annuitants who outlive their life expectancy.

According to retirement researcher Wade Pfau, “the risk pooling and mortality credits are the drivers of value from an income annuity.” While the benefits are obvious for someone who lives longer than expected (continued income for life), those who live fewer years than expected also benefit, according to Pfau, by being able to maintain a higher standard of living and spending more than they otherwise might if they were depending on their portfolio for income and self-managing longevity risk.

Consider a SPIA when your client needs:

Guaranteed Lifetime Income: Single premium immediate annuities are explicitly designed to manage longevity risk by generating an income stream that clients cannot outlive. Single premium immediate annuities also help reduce sequence of returns risk by generating a guaranteed income stream that cannot be impacted by market volatility.

Fixed Income: Single premium immediate annuities have the potential to provide a higher rate of consistent income payments than a fixed income strategy

Disclosures:

Annuities are not FDIC insured and are not deposits in, obligations of, or guaranteed by any bank or other financial institution.

All guarantees are based on the financial strength and claims paying ability of the issuing insurance company.

The purchase of an annuity within a retirement plan that already provides tax deferral under sections of the Internal Revenue Code results in no additional tax benefits. An annuity should be used to fund a qualified plan based upon the annuity’s features other than tax deferral. All annuity features, risks, limitations, and costs should be considered prior to recommending the purchase of an annuity within a tax-qualified retirement plan. In addition to surrender charges, withdrawals are subject to income tax.

Withdrawals prior to age 59 1/2 may also be subject to a 10% federal tax penalty.