What Is a SPIA?
SPIA Fundamentals
If you are considering a Single Premium Immediate Annuity, it helps to understand not only how the income works, but also what you receive and what you give up in exchange.
How one premium becomes a contractual income stream
When you purchase a SPIA, you pay a lump-sum premium to an insurance company and select an income option that reflects how and for how long you want payments to be made. Those payments generally begin within one year and may be paid monthly, quarterly, semiannually, or annually, depending on the contract you choose.
How your payout choice shapes the income you receive
If you choose a life-only option, payments generally continue for as long as you live, while a joint-life option may continue as long as either covered person is living. You may also be able to add period-certain or refund features that provide payments or value to beneficiaries, although adding those protections will generally change the amount of income you receive.
Why liquidity deserves careful consideration
Because the premium you use to purchase a SPIA is generally converted into a contractual income stream rather than remaining in an account you can readily access, you will want to consider your emergency reserves, near-term spending needs, and legacy goals before committing those dollars.
How the source of your premium affects taxation
If you use qualified retirement money, your payments are generally taxable when received, while payments funded with nonqualified money may include both a return of cost and taxable income. Because your circumstances can change the tax treatment, it is important to coordinate specific tax questions with a qualified tax professional.
Frequently Asked Questions
When do payments begin?
If you purchase an immediate annuity, your payments will typically begin within one year.
Can your payments increase with inflation?
Some contracts offer increasing-payment options, although your initial income will generally be lower when you select increases or additional protections.
Is a SPIA an investment account?
No. A SPIA is an insurance contract in which you exchange a premium for specified contractual income payments.
Annuities are insurance contracts intended for retirement or other long-term needs. Contractual guarantees are based on the claims-paying ability of the issuing insurance company. Annuity payments and available features vary by contract. Annuities may have limited or no liquidity after annuitization. This material is intended for general informational and educational purposes and is not a recommendation for any specific individual or situation. Guardian, its subsidiaries, agents and employees do not provide tax, legal, or accounting advice. Consult your tax, legal, or accounting professional regarding your individual situation.