What are Single Premium Deferred Annuities (SPDA) and How Do They Work?

Shawn Plummer

CEO, The Annuity Expert

If you are looking for a way to save for retirement, you may have come across the term “single premium deferred annuity.” But what is it? How does it work? And is it right for you? In this guide, we will answer your questions about SPDAs!

What Is A Single Premium Deferred Annuity (SPDA)?

A single premium deferred annuity (SPDA) is a contract between an insurance company and an individual that provides for the payment of a lump sum to the insurer in exchange for periodic payments at some future date.

The most common type of SPDA is a fixed annuity, which guarantees both the principal and the interest payments. However, variable annuities offer investors the opportunity to participate in the potential upside of the stock market while still providing downside protection.

SPDAs can be used for various purposes, including retirement income planning, estate planning, and charitable giving.

Single premium deferred annuities have become increasingly popular in recent years as more people look for ways to supplement their income in retirement. In addition, given the current low-interest rate environment, SPDAs can provide retirees with a higher stream of payments than what they could receive from a traditional fixed-income investment such as a CD or bond.

In addition, the payments from an SPDA are often tax-deferred, which means that they will not be subject to income tax until they are withdrawn. As a result, SPDAs can be an attractive option for retirees seeking to minimize their tax liability.

What Is A Single Premium Deferred Annuity

How Do Single Premium Deferred Annuities (SPDA) Work?

A single premium deferred annuity (SPDA) is an insurance product that allows the policyholder to make a lump-sum investment in exchange for future income payments. The annuity contract terms determine when income payments will begin and how long they will continue. SPDA contracts also typically include a death benefit, which pays out a lump sum to the policyholder’s beneficiary in the event of the policyholder’s death before the start of income payments. 

The Benefits Of Single Premium Deferred Annuities (SPDA)

Single premium deferred annuities offer several potential benefits, including:

  • The ability to generate income in retirement: SPDAs can provide retirees with a regular stream of payments that can supplement other sources of income, such as Social Security or a pension.
  • Death benefit protection: Most SPDA contracts include a death benefit, which pays out a lump sum to the policyholder’s beneficiary in the event of the policyholder’s death before the start of income payments.
  • Tax-deferred growth: The earnings on an SPDA investment grow tax-deferred, which means that they are not subject to income tax until they are withdrawn.
  • Flexibility: SPDA contracts typically offer various options for how and when income payments can be taken, providing policyholders with flexibility in retirement planning.

The Drawbacks Of Single Premium Deferred Annuities (SPDA)

Single premium deferred annuities also have some potential drawbacks to consider, including:

Types of Single Premium Deferred Annuities

There are two main types of single premium deferred annuities: fixed and variable.

A fixed single premium deferred annuity offers a guaranteed rate of return on the premium payment. The rate of return is set at the time of purchase and remains fixed throughout the deferral period.

A variable single premium deferred annuity, on the other hand, invests the premium payment in a portfolio of securities. The rate of return is tied to the performance of the underlying investments and can fluctuate over time.

Choosing a Single Premium Deferred Annuity

When considering a single premium deferred annuity, it is important to carefully evaluate your personal financial goals, risk tolerance, and time horizon. It may also be helpful to work with a financial advisor to determine if a single premium deferred annuity is the right choice for your individual needs.

Next Steps

A deferred annuity could be helpful if you are a retiree looking for ways to supplement your income. However, it is essential to understand these products’ potential benefits and drawbacks before investing. Contact us today for a quote so that you can find the best product for your needs. We offer various options, so we are sure to have something that will fit your budget and lifestyle.

Single-Premium Deferred Annuities (Spda)

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Frequently Asked Questions

How does the interest rate affect an SPDA?

Higher interest rates increase the earnings potential of an SPDA.

How are SPDAs taxed?

Withdrawals are taxed as ordinary income.

Shawn Plummer

CEO, The Annuity Expert

I’m a licensed financial professional focusing on annuities and insurance for more than a decade. My former role was training financial advisors, including for a Fortune Global 500 insurance company. I’ve been featured in Time Magazine, Yahoo! Finance, MSN, SmartAsset, Entrepreneur, Bloomberg, The Simple Dollar, U.S. News and World Report, and Women’s Health Magazine.

The Annuity Expert is an online insurance agency servicing consumers across the United States. My goal is to help you take the guesswork out of retirement planning or find the best insurance coverage at the cheapest rates for you. 

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