A retirement annuity is a contract between an individual and an insurance company in which the individual receives a series of payments, usually on a monthly basis, for the rest of their life. There are many different types of retirement annuities available, but one that has been growing in popularity recently is the immediate annuity. An immediate annuity can provide retirees with much-needed peace of mind, knowing that they will have a steady stream of income coming in each month. In this guide, we will discuss the benefits of immediate annuities and how they can help you secure your retirement!
- What Is An Immediate Annuity?
- When Are Contributions To An Immediate Annuity Made?
- When Does An Immediate Annuity Begin Making Payments?
- Who should consider an Income Annuity?
- Income Annuities At a glance
- Immediate Annuity Pros and Cons
- SPIA Myth’s
- Immediate Annuity Payouts
- How Long is the Accumulation Period For Immediate Annuities?
- A Split Annuity
- Immediate Annuity Rates
- What Do My Beneficiaries Receive When I Die?
- Immediate Annuity Quotes
- Frequently Asked Questions
What Is An Immediate Annuity?
What is an immediate annuity? A single premium immediate annuity (SPIA) is a retirement insurance plan most often used for an immediate income stream. A consumer provides a lump sum of money to an insurance company in exchange for a guaranteed income stream for life, a fixed period of time, or both. The income stream is irrevocable.
A SPIA offers security to retirees who want to supplement their retirement income. In particular, it may be used for clients who retire early and are waiting for Social Security benefits to begin.
Single premium funds can come from various sources, including a 401(k), 403(b), IRA rollover, or other retirement savings.
The state lottery typically uses an SPIA as the payout option when collecting winnings.
Immediate annuities can also be referred to as an income annuity, instant annuity, ordinary annuity, life annuity, pension annuity, a lifetime annuity, single premium annuity, and Medicaid Annuity.
When Are Contributions To An Immediate Annuity Made?
Contributions to an immediate annuity are provided one time upfront in a lump sum.
When Does An Immediate Annuity Begin Making Payments?
A primary characteristic of an immediate annuity is that the contract is irrevocable, which means there’s no turning back after you start the policy, so be careful when deciding. The term “annuitization” or “annuitize” is used to describe this irrevocable income stream. With SPIA’s, you can either start receiving your annuity checks within 30 days or defer up to 12 months.
If you’d prefer the retirement income for life, but want more flexibility and control, check out a Guaranteed Lifetime Withdrawal Benefit. The income rider will provide similar benefits as the SPIA annuity but all-around better results.
Who should consider an Income Annuity?
Immediate Annuities (SPIA) and Deferred Income Annuities (DIA) are considered Income Annuities.
Single-Premium Immediate annuities are not a good retirement plan for many people for several reasons but can help a specific type of person, primarily retirees living on a fixed income. If you’re planning to live on a fixed income in retirement, an SPIA might be a good option to “layer” another stream of a steady income in addition to social security.
Only purchase an immediate fixed annuity if you have plenty of liquid assets to withdraw from in the case of emergencies. Remember, you’re going to be stuck with the annuity provider.
Consumers buy immediate annuities for a guaranteed income paycheck to complement their Social Security income. Retirees layer the immediate annuity’s income on top of the SSI to create a monthly cash flow as if they were still working.
Income Annuities At a glance
|Access To Principal||Yes||Yes||Yes||No||No|
|Control Over Money||Yes||Yes||Yes||No||No|
|Long-Term Care Help||Yes||Yes||Yes||No||No|
Immediate Annuity Pros and Cons
- Guaranteed income for life or a fixed period of time
- Potential higher payouts
- Tax-favored withdrawals on nonqualified annuities
- No additional fees
- Irrevocable payments
- Can not be surrendered; No refunds
- Earns approximately 1% interest annually
- No liquidity
- No death benefit or series of payments
- Can not help healthcare costs
- A SPIA annuity might generate higher income paychecks than a Fixed Indexed Annuity or Variable Annuities with an income rider.
- The income annuity guarantees regular payments based on contract terms, similar to a pension plan.
- You can choose how often you collect your steady retirement income on a monthly, quarterly, semi-annually, or annually basis.
- The income payouts are irrevocable, which means once you turn on the income, there’s no turning it off. There’s no refund.
- No access to your original principal in case of emergencies. No liquidity.
- Immediate annuities have no cash value and offer no growth potential. One can expect to earn between 1% – 1.5% interest rate annually.
- Single premium immediate annuity rates are very low due to the current interest rate environment.
A common misconception about an immediate payment annuity is zero death benefit if the annuity owner dies on all SPIAs. This is not true.
If you choose a Life Only Based payout option (single-life annuity or joint annuity), there will be no chance of death benefit if the annuity owner(s) pass away hence the term “Life Only.”
Immediate Annuity Payouts
You receive guaranteed income for as long as the Annuitant lives, but with no payments after the Annuitant’s death. This option should not be chosen if you want someone to receive payments after the Annuitant’s death.
Joint and Contingent Life Income
Income payments continue for as long as either the annuitant or contingent annuitant lives. Thus, the joint-life income amount will be paid in full while the annuitant is alive.
If the annuitant dies before the contingent annuitant, payments will continue at the rate you requested in your application and be paid for as long as the contingent annuitant lives.
Payments will cease at the death of both the annuitant and the contingent annuitant.
Income for a Fixed Period
Payments are guaranteed for the number of years and months chosen in the application. If the Annuitant dies before the end of the fixed period, a death benefit, consisting of a lump sum amount equal to the commuted value, will be paid. The death benefit recipient may elect to receive the remaining guaranteed annuity payments, as scheduled, instead of the commuted value. Fixed period annuities can also be known as an Ordinary Annuity or Period Certain Annuity.
Life Income with a Guaranteed Period
You are guaranteed to receive income payments for as long as the annuitant lives. However, if the annuitant should die during the guaranteed period you selected, you or your beneficiary will receive the remaining guaranteed payments.
Life Income with Installment Refund
Your payments will begin on the income start date and are guaranteed to continue for the annuitant’s lifetime.
If the annuitant dies before receiving the total annuity payments equal to the initial purchase price, payments will continue to the named primary beneficiary until the sum of all payments equals the original purchase price.
Life Income with a Cash Refund
Your payments will begin on the income start date and are guaranteed to continue for the annuitant’s lifetime. However, if the annuitant dies before receiving total annuity payments at least equal to the purchase price, the difference will be paid to the named beneficiary in a lump sum.
Inflation Adjusted (Cost of Living Adjustment)
An optional feature in which you elect a lesser initial income amount with annual increases to keep up with inflation.
How Long is the Accumulation Period For Immediate Annuities?
The minimum accumulation period for a fixed immediate annuity is 30 days and the maximum accumulation period for a deferred immediate annuity is 12 months.
A Split Annuity
A split-annuity refers to “splitting” an annuity owner’s money into 2 annuities, a SPIA and a deferred annuity. The immediate annuity will supplement the immediate need for an income, and the deferred annuity will supplement an income in the future. By layering the 2 annuities, will manipulate an increase in cash flow as the retiree gets older.
Immediate Annuity Rates
Immediate annuity rates change weekly. Each month I publish sample annuity rates to give readers an idea of what income can be generated from an immediate annuity. To find current immediate annuity rates with the best insurance companies, request a quote to view your options.
|Payout||Age 60||Age 65||Age 70|
|Life with 10 Year Period Certain||$4,944||$5,532||$6,300|
|10 Year Period Certain||$10,515||$10,515||$10,515|
|20 Year Period Certain||$6,053||$6,053||$6,053|
What Do My Beneficiaries Receive When I Die?
Immediate annuities may or may not offer a death benefit to beneficiaries. If a death benefit is offered, a series of payments is the standard method of distributing the proceeds.
Helpful tip: If you want to leave money to your beneficiaries, life insurance might be a better option for you. In some cases, you don’t need to take a medical examination. Use our quoting tool to find out how much is life insurance. Coverage starts at $9.37 per month.
Immediate Annuity Quotes
If you are considering purchasing an immediate annuity, be sure to do your homework first. Request a quote from different insurance companies and compare the benefits and features of each plan. Make sure you understand all of the terms and conditions before making a decision. Immediate annuities can be a great way to provide guaranteed income in retirement, but they are not for everyone.
Frequently Asked Questions
An immediate annuity contract provides for
An immediate annuity contract provides for the liquidation of a principal sum. Purchased with a single lump-sum payment and will start providing income payments within the first year. Usually starting 30 days from the purchase date.