What Is a SPIA?
Single Premium Immediate Annuity (SPIA)Single Premium Immediate Annuity (SPIA)
An insurance contract purchased with a single lump sum that begins paying guaranteed income within 30 days. The owner exchanges an irrevocable premium for a stream of periodic payments guaranteed by the issuing insurance company’s financial strength and claims-paying ability. Payments can last for a set period or for the owner’s entire lifetime. SPIAs are not FDIC-insured.
A SPIA is the simplest answer to the most important question in retirement: How do I make sure I never run out of money?
The mechanics are straightforward. You give an insurance company a lump sum — your “premium” — and in return they guarantee you a fixed monthly payment for as long as you live (or for a period you choose). The first payment arrives within 30 days. There are no annual fees, no investment decisions, and no market risk. The insurer bears the longevity risk: if you live to 105, they keep paying.
SPIAs are the original annuity — the product that gives the entire category its name (from the Latin annuus, meaning “yearly”). While newer products like MYGAs and FIAs focus on accumulation, SPIAs do one thing: convert a known sum of money into a guaranteed stream of income.
In 2024, Americans purchased $14.2 billion in SPIAs, according to LIMRA. While smaller than the fixed annuity accumulation market, SPIAs serve a role no other financial product can replicate: they are the only private-market instrument that guarantees income for life, regardless of how long you live or what happens in the markets.
How a SPIA Works
Every SPIA follows the same three-step process:
- You pay a single premium. A lump sum — typically $25,000 to $500,000 — is transferred to an insurance company. This can come from savings, a maturing CD or MYGA, an IRA or 401(k) rollover, or a 1035 exchange from another annuity.
- You select a payout option. This is the most consequential decision. You choose how long payments last (your lifetime, a set period, or joint lives) and whether beneficiaries receive anything if you die early. Your choice permanently determines the payment amount.
- The insurer pays you, guaranteed. Monthly (or quarterly/annual) payments begin within 30 days and continue for the duration you selected. The amount never changes. The insurer is contractually obligated to make every payment regardless of market conditions, interest rate changes, or how long you live.
The irrevocability tradeoff.
never put all of your retirement savings into a SPIA
SPIA Payout Options
The payout option you choose at purchase determines two things: how much you receive each month, and what happens to payments if you die. These are listed from highest to lowest monthly payment:
1. Life Only
Pays for your entire lifetime. When you die, payments stop completely — nothing goes to beneficiaries. This option is best for healthy individuals without dependents who want maximum monthly income. The insurer prices this aggressively because they keep any remaining actuarial value at death.
2. Life with Period Certain
Pays for your lifetime or a minimum number of years (typically 10 or 20), whichever is longer. If you die during the certain period, your beneficiary receives the remaining payments. If you outlive the period, payments continue for life. This is the most commonly selected option because it balances income with beneficiary protection. Monthly payment is slightly lower than Life Only.
3. Life with Cash Refund
Pays for your lifetime. If you die before total payments received equal your original premium, the beneficiary receives the difference as a lump sum. Guarantees your full investment is always returned. Payment is lower than Life with Period Certain.
4. Joint and Survivor
Pays as long as either of two people (typically spouses) is alive. Survivor continuation options: 100% (same payment continues), 75%, or 50% of the original amount. Lower initial payment than single-life options because the insurer may be paying for two lifetimes. Essential for married couples where both partners depend on the income.
5. Period Certain Only
Pays for a fixed number of years (5, 10, 15, or 20) regardless of whether you are alive. If you die, the beneficiary receives all remaining payments. This is not a life annuity — payments end when the period expires. Functions more like a structured payout from savings.
How to choose:
Life Only
Joint and Survivor
Life with 10 or 20-year Certain
Life with Cash Refund
What Determines Your SPIA Payment?
SPIA payout rates are not interest rates. A payout rate represents the annual income per dollar of premium — it includes both a return of your own principal and interest earned by the insurer. A 7% payout rate on $100,000 means $7,000 per year ($583/month), not 7% interest on your money.
Five factors determine your payment amount:
Factor: Age at purchase | Impact: Older = higher payment | Why: Shorter expected payout period means the insurer can return principal faster
Factor: Gender | Impact: Males typically receive higher payments | Why: Males have shorter average life expectancy, so the expected payout period is shorter
Factor: Payout option | Impact: Life Only = highest; Joint Survivor = lowest | Why: More beneficiary protection or more covered lives = lower payment per dollar
Factor: Interest rates | Impact: Higher rates = higher payments | Why: The insurer invests your premium; higher rates mean more investment income to fund payments
Factor: Premium amount | Impact: Larger premiums may unlock slightly better rates | Why: Lower per-dollar administrative costs for the insurer on larger contracts
Illustrative SPIA Payout Rates (2026)
Important:
Age / Gender: 60M | Life Only: 6.8% | Life w/ 10-Yr Certain: 6.4% | Life w/ 20-Yr Certain: 5.8% | Joint & Survivor (100%): 5.6%
Age / Gender: 65M | Life Only: 7.6% | Life w/ 10-Yr Certain: 7.0% | Life w/ 20-Yr Certain: 6.2% | Joint & Survivor (100%): 5.9%
Age / Gender: 70M | Life Only: 8.7% | Life w/ 10-Yr Certain: 7.8% | Life w/ 20-Yr Certain: 6.6% | Joint & Survivor (100%): 6.3%
Age / Gender: 75M | Life Only: 10.2% | Life w/ 10-Yr Certain: 8.8% | Life w/ 20-Yr Certain: 7.0% | Joint & Survivor (100%): 6.8%
Age / Gender: 60F | Life Only: 6.5% | Life w/ 10-Yr Certain: 6.2% | Life w/ 20-Yr Certain: 5.7% | Joint & Survivor (100%): —
Age / Gender: 65F | Life Only: 7.2% | Life w/ 10-Yr Certain: 6.7% | Life w/ 20-Yr Certain: 6.0% | Joint & Survivor (100%): —
Age / Gender: 70F | Life Only: 8.2% | Life w/ 10-Yr Certain: 7.4% | Life w/ 20-Yr Certain: 6.4% | Joint & Survivor (100%): —
Age / Gender: 75F | Life Only: 9.6% | Life w/ 10-Yr Certain: 8.4% | Life w/ 20-Yr Certain: 6.8% | Joint & Survivor (100%): —
To estimate monthly income: multiply the payout rate by your premium, then divide by 12. For example, a 65-year-old male investing $200,000 in a Life with 10-Year Certain SPIA at a 7.0% payout rate would receive approximately $200,000 × 7.0% ÷ 12 = $1,167 per month, guaranteed for life (minimum 10 years).
The Income Gap: How to Know If You Need a SPIA
The single most useful framework for evaluating a SPIA is the income gap analysis. It answers: Do I have enough guaranteed income to cover the expenses I can’t cut?
Step 1: Calculate your guaranteed income
Add up all income sources that are guaranteed for life: Social Security benefits, pension payments, any existing annuity income, and other fixed sources. This is your “income floor.”
Step 2: Calculate your essential expenses
Add up the expenses you cannot eliminate: housing (mortgage/rent, property tax, insurance), food, healthcare premiums and out-of-pocket costs, utilities, transportation, and insurance. These are your “non-negotiable” costs.
Step 3: Find the gap
If essential expenses exceed guaranteed income, you have an income gap. A SPIA can close it. If your guaranteed income already covers essentials, a SPIA may not be necessary — your portfolio can cover discretionary spending with more flexibility.
How much to allocate
Financial professionals generally recommend allocating only enough to close the income gap — not your entire nest egg. A common guideline is no more than 25–40% of liquid retirement assets. The remainder stays invested for growth, inflation protection, healthcare reserves, emergency funds, and legacy. A SPIA covers the floor; your portfolio covers everything above it.
How SPIA Income Is Taxed
Tax Disclaimer:
Non-Qualified SPIAs (funded with after-tax money)
Each payment is split into two parts using the exclusion ratio:
- Tax-free return of principal: The portion representing your original investment coming back to you. Not taxed.
- Taxable earnings: The portion representing interest earned by the insurer on your premium. Taxed as ordinary income.
For example, if you invest $100,000 and the expected total return over your life expectancy is $150,000, your exclusion ratio is 66.7%. This means 66.7% of each payment ($389 of a $583 monthly payment) is tax-free, and 33.3% ($194) is taxable. After you have received back your full $100,000 investment, all subsequent payments become fully taxable as ordinary income.
Qualified SPIAs (funded with IRA or 401k money)
The entire payment is taxable as ordinary income. Since the premium was contributed pre-tax, all withdrawals are taxable. There is no exclusion ratio for qualified SPIAs.
Tax advantage of non-qualified SPIAs
Compared to withdrawing from a taxable investment account, non-qualified SPIA income is partially tax-free for many years (the exclusion ratio period). This can result in a lower effective tax rate on your income than other withdrawal strategies. This is particularly valuable for retirees in the 22–24% federal tax bracket.
SPIAs vs. Other Income Sources
Feature: Income guarantee | SPIA: Guaranteed for life by insurer | Systematic Withdrawal (4% Rule): No guarantee — depends on portfolio performance | Bond Ladder: Guaranteed for bond duration only | DIA (Deferred Income): Guaranteed for life by insurer
Feature: Longevity protection | SPIA: Complete — pays no matter how long you live | Systematic Withdrawal (4% Rule): Risk of depletion if you live longer than expected or markets underperform | Bond Ladder: None — income ends when bonds mature | DIA (Deferred Income): Complete — pays for life starting at future date
Feature: Liquidity | SPIA: None — premium is irrevocable | Systematic Withdrawal (4% Rule): Full — access entire portfolio anytime | Bond Ladder: Moderate — can sell bonds but at market price | DIA (Deferred Income): None until income starts
Feature: Inflation protection | SPIA: None (fixed payments) unless COLA rider elected | Systematic Withdrawal (4% Rule): Possible — portfolio can grow | Bond Ladder: Limited — fixed coupon payments | DIA (Deferred Income): None (fixed payments)
Feature: Complexity | SPIA: Very Low — one decision, fixed payment | Systematic Withdrawal (4% Rule): Moderate — ongoing investment management | Bond Ladder: Moderate — requires bond selection and reinvestment | DIA (Deferred Income): Very Low — one decision, deferred payment
Feature: Income amount | SPIA: Higher than 4% rule at most ages | Systematic Withdrawal (4% Rule): 4% of initial portfolio, adjusted for inflation | Bond Ladder: Depends on yields and ladder design | DIA (Deferred Income): Higher than SPIA (deferral bonus)
Feature: Insurance backing | SPIA: Insurer’s claims-paying ability | Systematic Withdrawal (4% Rule): Market risk borne by owner | Bond Ladder: Issuer credit quality (Treasury = government-backed) | DIA (Deferred Income): Insurer’s claims-paying ability
Feature: Beneficiary value | SPIA: Depends on payout option — may be zero (Life Only) | Systematic Withdrawal (4% Rule): Full remaining portfolio | Bond Ladder: Remaining bonds at market value | DIA (Deferred Income): Depends on payout option
Feature: Best for | SPIA: Guaranteed income floor, longevity insurance | Systematic Withdrawal (4% Rule): Flexible income with growth potential | Bond Ladder: Predictable income for known period | DIA (Deferred Income): Future income at higher rates
The case for combining strategies:
and
SPIA vs. DIA: Which Income Annuity?
SPIAs and DIAs are both income annuities that convert a lump sum into guaranteed payments. The key difference is timing:
- SPIA: Income Now — Payments begin within 30 days. Best if you are already retired and need income immediately. Payout rates are lower than DIAs because there is no deferral period for the premium to grow.
- DIA: Income Later — Payments begin at a future date you choose (2–40 years later). Best if you are 50–60 and want to lock in higher future income. The deferral period means the insurer can offer significantly higher monthly payments.
A useful rule of thumb: if you are over 60 and need income within the next year, a SPIA is the right tool. If you are 50–60 and planning for income in 5–15 years, a DIA will generate 20–50% more monthly income for the same premium, because the insurer has years to invest your premium before payments begin.
Who Should Buy a SPIA?
Appropriate For:
- Retirees aged 60–85 who need income now
- Those without a pension who need to create their own guaranteed income floor
- Anyone whose essential expenses exceed guaranteed income (Social Security + pensions)
- People concerned about outliving their savings (longevity risk)
- Those who find managing investments stressful in retirement
- Retirees with a maturing MYGA or CD they want to convert to income
- People who want the simplicity of a fixed paycheck in retirement
- Those in good health (healthy retirees benefit most from life annuities)
Not Suitable For:
- Anyone under 60 (a DIA offers better value with deferral)
- Anyone who may need the lump sum back (SPIAs are irrevocable)
- Those with serious health conditions or short life expectancy (may not recoup premium)
- Anyone whose Social Security and pension already cover essentials
- Those with less than $100,000 in total retirement savings (liquidity matters more)
- Anyone uncomfortable with irrevocability
- Those who prioritize leaving a large inheritance (Life Only SPIAs leave nothing)
- Anyone already over-allocated to guaranteed products with no growth exposure
How to Buy a SPIA
- Calculate your income gap. Use the What Is Your Number? calculator to determine how much guaranteed monthly income you need beyond Social Security and pensions.
- Determine the premium. Work backward from the income gap. If you need $1,000/month and a 65-year-old male gets approximately 7.0% payout (Life with 10-Year Certain), you need roughly $171,000 in premium ($1,000 × 12 ÷ 0.07).
- Choose a payout option. Single? Life Only or Life with Period Certain. Married? Joint and Survivor. Want full premium protection? Cash Refund. This decision is permanent.
- Get quotes from multiple carriers. SPIA rates vary 5–10% between carriers for the same payout option. An independent agent who works with multiple insurers can comparison-shop for you.
- Verify carrier financial strength. Your carrier must stay solvent for potentially 30+ years of payments. Choose A.M. Best A- (Excellent) or better. For very large premiums, consider splitting between two carriers for diversification.
- Consider laddering. Rather than purchasing one large SPIA today, some retirees buy smaller SPIAs over 3–5 years. This diversifies across carriers, hedges interest rate risk, and allows you to adjust as your income needs become clearer.
- Utilize the free look period. After the policy is issued, review the contract during the state-mandated free look period (typically 10–30 days). You can cancel for a full refund during this window.
SPIA Misconceptions
“The insurance company keeps my money when I die”
Only with a Life Only payout option. Life with Period Certain, Cash Refund, and Joint and Survivor options all provide beneficiary payments. The most popular option (Life with 10-Year Certain) guarantees at least 10 years of payments to you or your beneficiary — plus lifetime coverage if you live beyond 10 years.
“SPIAs are a bad deal because I can earn more investing myself”
A SPIA is not an investment — it is insurance against running out of money. The payout rate includes return of principal plus interest, and it also includes a “mortality credit”: the actuarial subsidy from people who die early funding payments for people who live long. No investment portfolio can replicate this mortality pooling benefit. A 70-year-old receiving an 8.7% payout rate is not earning 8.7% on their money — they are receiving a combination of their own principal, interest, and mortality credits that guarantees income for life.
“Inflation will destroy the value of fixed payments”
This is a legitimate concern. Fixed SPIA payments lose purchasing power over time. The response is not to avoid SPIAs, but to right-size them: cover only essential expenses (which are more inflation-stable than discretionary spending) and keep remaining assets in a growth portfolio that can outpace inflation. Some carriers offer COLA (cost-of-living adjustment) riders, but these reduce the initial payment by 20–30%, which may not be worthwhile.