SPIA Annuities Explained


Single Premium Immediate annuities provide predictable income streams for investors during their retirement years. They are often a favorite of savvy investors because they guarantee a predictable periodic payout. Often referred to as SPIA annuity, it is contract made between an investor and an insurance contract for future payouts that are predictable and able to grow tax free.

As the term “single” determines, this is type of annuity is bought during a one-time and upfront payment to an insurance company, in which case they will turn around and begin paying the investor a predetermined amount every month or in a period that is determined. The SPIA annuity can provide for an income for the rest of the investor’s life by using pre-calculated tables that determine your life expectancy and the rate at which you want to receive during the year. Like other annuities, the growth in these funds are tax-deferred and are calculated using an exclusion ratio. The investor, for example, would not pay taxes on the initial payment into made into his investment. He or she would only be pay taxes on the growth.

There are many versions of single premium annuities for the investor who is acting based on his financial goals. A fairly popular version is the fixed payment single premium annuity. The type of account provides a fixed monthly (or a period of time previously agreed upon) for the investor, paid out by the annuity. There are also several other types of investments that can be made through single premium annuities – that are not “immediate” annuities. The single premium annuity can either be immediate or deferred. Both types of annuities can be placed in a variable or indexed fund. The growth or performance on those annuities would be strictly pegged to the performance of the funds that they are invested in.

SPIAs, like other annuities, are beneficial because they make retirement income more easily to predict. They can also be adjusted to reflect inflationary upswings throughout the life of the annuity. They can be affected tax deferred accounts that can grow with inflation. One characteristic of the SPIA is that most contracts don’t allow for a beneficiary to be designated. Therefore, if the person purchasing the SPIA were to die in the middle of his distribution phase, he would not be able to pass on the future payment to a spouse of a loved one.

In addition, like other annuities, the SPIA investments are not backed by the FDIC. It is always important for the investor to be updated on the health of the institution, usually an insurance company, that will be making the payments. Many states have insurance groups that help provide a safety net for investors. In order to maintain a healthy industry, other insurance companies have set a precedent to buy up the contracts of a company who may no longer solvent. Regardless, reading the prospectus, quarterly reports, statements, and annual prospectus can help keep an investor grounded. If the investor determines that the company in question may not be as healthy or is not offering the service an investor would want, the investor can often switch annuity companies and incur not tax charge – but might incur a charge. Nevertheless, SPIAs provide a stable, steady, and predictable income streams for either a predetermined amount of time.