5 Benefits and Considerations of SPIA
Should You Consider a SPIA for Retirement Income?
When planning for retirement, many people worry about one thing: outliving their money. That’s where a Single Premium Immediate Annuity (SPIA) can come in.
A SPIA offers something rare in today’s financial world—guaranteed monthly income for life. But like any financial product, it comes with trade-offs. If you’re a retiree or someone nearing retirement and you’re looking for a simple, reliable income stream, this guide is for you.
What Is a SPIA?
A Single Premium Immediate Annuity is a contract between you and an insurance company. You make a one-time payment (the “single premium”), and in return, you get a stream of income that starts right away—typically within a year.
Why Retirees Consider SPIAs
Let’s break down the key advantages of SPIAs in plain language:
1. Low or No Ongoing Fees
Unlike many investment options, SPIAs usually have minimal fees. This means more of your money goes toward generating income, not management costs.
2. Guaranteed Income for Life
Once set up, your payments are locked in and will keep coming for as long as you live. This shifts the risk of running out of money from you to the insurance company.
3. Easy to Set Up
SPIAs are straightforward. You make a lump-sum payment and start receiving income—no ongoing rebalancing or investment decisions needed.
4. Optional Inflation Protection
Some SPIAs offer inflation-adjusted payouts, helping your income keep up with rising costs over time.
5. Mortality Credits = More Potential Income
Because you’re part of a pool of annuity holders, those who live longer benefit from funds left by those who pass earlier. It’s a financial advantage you can’t get from other investments.
What You Need to Watch Out For
SPIAs are not for everyone. Consider the following drawbacks carefully:
1. Reduced Liquidity
Once you buy a SPIA, that money is committed. You typically can’t access your lump sum again. This is why SPIAs shouldn’t be your only retirement income strategy.
2. Purchasing Power Risk
If you don’t choose inflation protection, your monthly payments may lose value over time. What feels like enough today may not stretch as far 10 or 20 years from now.
3. Limited Flexibility
Some contracts allow a one-time withdrawal, but this varies by state and plan. Be sure to read the fine print or speak with a trusted advisor.
Who Might Benefit Most from a SPIA?
A SPIA may be a good fit if you:
- Want guaranteed income without the stress of market volatility
- Have other sources of liquidity (like savings or investment accounts)
- Are concerned about budgeting throughout retirement
- Value simplicity and peace of mind over growth potential
How to Use SPIAs in a Broader Retirement Strategy
Most advisors recommend not putting all your retirement funds into a SPIA. Instead, use it to cover essential expenses like:
- Housing
- Healthcare premiums
- Food and utilities
Then, keep other assets in place to grow your wealth or handle unexpected costs.
Common Questions About SPIAs
Is the income taxable?
Yes, part of your SPIA income may be taxable depending on how it was funded (pre-tax or after-tax dollars). A financial advisor can walk you through your specific situation.
Can I leave a SPIA to my heirs?
Generally, SPIAs don’t offer a death benefit unless you purchase a rider for that feature. Some SPIAs allow for a “period certain” payout where payments continue to a beneficiary for a set number of years.
Final Thoughts
A SPIA can offer clarity, simplicity, and financial comfort—but it’s not one-size-fits-all. If you’re unsure whether it’s right for you, a financial advisor can help map out how it fits into your overall retirement plan.
Let’s Talk About Your Retirement Goals
Want help deciding if a SPIA makes sense for you?
- Schedule a free consultation
- Download our free retirement income checklist
Or explore more on our Retirement Planning Services.
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