A Single Premium Immediate Annuity (SPIA) is a contract where the client makes a one-time payment in exchange for receiving periodic payments for the duration of the contract. The contract typically is for the lifetime of an individual or a survivorship, but can also have a term that guarantees payments for a specified number of years.
If you choose a life-contingent payment option, a SPIA delivers a stream of income that cannot be outlived. Your payments will continue for the rest of your life, guaranteed, even if you live well beyond your normal life expectancy. When your SPIA payment option is life contingent, you may receive a higher income than you would receive from other highly secure, fixed-income instruments, such as U.S. Treasuries or Municipal Bonds. However, unlike other instruments, a SPIA has no residual value at the end of the contract. At the end of your lifetime or the minimum payment term, the SPIA contract ends, and there is no additional value or future payments from the contract.
Benefits of a SPIA
- A guaranteed income stream for your lifetime and/or a minimum term of years.
- A rate of return guaranteed by the issuing company.
- With a life-contingent payment option, you may receive a higher rate of return than other fixed-income investment instruments.
- A portion of each SPIA payment is considered a return of your initial investment and may not be subject to income tax.
What is an Annuity Strategy?
When you purchase a life-contingent SPIA, the issuing company determines your life expectancy and the expected payment amounts. The older you are when you purchase the SPIA, the lower your life expectancy is, so the issuing company can pay you a higher periodic payment per premium dollar. Rather than purchasing a large SPIA at one time, an Annuity Strategy purchases SPIAs over several years. Although an Annuity Strategy does not lock in the payment rates until you actually purchase the SPIA, this strategy allows you to use some of your assets to purchase a SPIA when you are older and are more likely to get a higher payment. This strategy may be subject to policy fees.
Benefits of an Annuity Strategy
- Purchasing SPIAs when you are older often results in higher SPIA payments.
- You convert assets to income over time, giving you flexibility to change strategies.
Note: Guaranteed rates of return and guaranteed income are contingent upon the claims paying ability of the issuing company.