Single Premium Immediate Annuity – Pros and Cons

Preserving Retirement Assets

Single premium immediate annuities (SPIAs) are a type of annuity contract that provide a guaranteed income stream for the remainder of the annuitant’s life (or the life of the annuitant and their spouse), in exchange for a single lump sum payment. While SPIAs can be a great tool for generating income during retirement, it’s important to understand both the pros and cons of this type of annuity before making a decision.


  1. Guaranteed income stream: One of the primary advantages of a SPIA is that it provides a guaranteed income stream for the remainder of the annuitant’s life, or the joint life of the annuitant and their spouse. This is really valuable for individuals who are worried about outliving their savings, since it can provide a sense of peace of mind and security in retirement.
  2. Customizable payments: The annuitant can choose to receive payments monthly, quarterly, or annually, and can also choose to have payments increase over time to keep pace with inflation.  Keep in mind, payments that keep up with inflation will typically start lower than level payments.
  3. Tax-deferred growth: SPIAs provide tax-deferral, meaning that the annuitant does not have to pay taxes on the growth until it is withdrawn.


  1. Limited access to funds: Once the lump sum payment is made, it cannot be retrieved. This means that the individual will not have access to their lump sum investment put into the SPIA, but will have a steady income for the rest of their life.
  2. No access to principal: The annuitant will not have access to the principal invested in the SPIA and will only receive income payments.  This loss of access to principal is the biggest drawback of the SPIA.  Many other types of annuities provide access to the lump sum account value in the event of an emergency, such as a terminal illness, confinement to a nursing home, or chronic illness.  SPIAs do not include any additional liquidity features – the longer you live, the better your return will be, and vice versa.
  3. Income Tax: Annuity payments may be subject to income tax and it is important to consider the current and future tax situation.  Working with an experienced advisor can assist with understanding taxation of different types of annuities.
  4. Limited flexibility: Once the contract is in place, the terms cannot be changed, which limits the flexibility of the annuitant to change the payment schedule or beneficiaries.

In conclusion, Single Premium Immediate Annuities can be an excellent way to create a steady stream of income for the remainder of your life, or the joint life of you and your spouse. However, it is important to understand the pros and cons of this type of annuity before making a decision. It is also important to carefully consider the terms of the contract and to consult with an advisor before purchasing a SPIA.

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