Table of Contents

An Immediate Annuity Has Been Purchased With A Single Premium (SPIA)

Stan Haithcock
April 14, 2022
An Immediate Annuity Has Been Purchased With A Single Premium (SPIA)

Let’s talk about Single Premium Immediate Annuities, the granddaddy of all annuities, and how that works. You might consider that for a lifetime income stream, but we're not going to do any of that until I hear some music.

SPIA History

Single-Premium Immediate Annuities have been around for a long time. How long? Good question. Since the Roman times. The dutiful Roman soldiers and their families were laying it on the line for the Empire. And the Emperor said, you know what? Let's create a pension payment, a lifetime income stream for the dutiful Roman soldiers and their families, and that's where the Single Premium Immediate Annuity started. And to this day, it's pretty much the same structure and has been sold in this country, the United States of America, for hundreds and hundreds of years.

You need to understand that Single Premium Immediate Annuities are commodity products, meaning that there's no one better than the other. You have to shop all carriers for the highest contractual guarantee. Fortunately, the best calculators on the planet are found on my site, where you can run your own Single Premium Immediate Annuity quotes 24/7 365 at your leisure.

SPIAs as a Pension

Think of an Immediate Annuity as a pension. We live in a pensionless world. Unless you're working for the government or a very good labor union, you don't have a pension; you probably have a 401K or something you’re deferring as growing. Eventually, you're going to have to convert some or all of that into a lifetime income stream, and that's where a Single Premium Immediate Annuity comes into play.

Now, Single Premium Immediate Annuity quotes can be run in two ways. The first way is a lump sum. So you say, wait a minute, Stan, I have $100,000 or $200,000. What would that pay? Would that pay for my life, or would that pay for me and my spouse or partner's life? You can calculate that. Then obviously, on one life, there's going to be a higher payment than if they're covering two lives.

How to Structure

Now there's a myriad of ways to customize that structure. There are over 40. That's the reason that we eventually need to talk. After you run the quotes yourself, you need to schedule a call with me, and I can ask questions. Here's the structure that I would tell you that works the other way. So that's one-way lumps; the other way to run the quote is to Reverse Engineer the quote. And the way to do that is to put in the amount you want to solve for it.

So let's just say you have an income floor. I call it the income floor, the amount of money to your bank account every month to cover expenses. So you have Social Security. That's an Immediate Annuity or deferred income annuity. However you want to frame it, it's an annuity. A pension that's an annuity of dividends coming in or rental income or whatever. But you need an additional $750 as an example, or $500, then what you do is you put in to solve for that $750 a month. What carrier quoting all carriers, which was what we do, would contractually guarantee that amount using the least amount of money? Yeah.

Using the Least Amount

The way to buy annuities is to to to use the least amount of money to solve for the contractual guarantee you're looking for. That's the best way, in my opinion. So lump sum or reverse engineer, that's how to run your Single Premium Immediate Annuity quotes. I get a question “how much money should I put into an annuity, in this case, a Single Premium Immediate Annuity?” Well, most carriers and the industry do not like any more than 50 percent of your investable assets put in any annuities total period.

The unfortunate part is a lot of agents don't know that, and they're putting way too much money into annuities than they should. So if you're thinking about how much money I should put in, let's just say you have $500,000 total. IRAs, non IRAs, Roth IRAs, checking accounts, banking accounts. I'm not talking about home or car or guitars. I'm talking about investable assets. Let's say you have 500,000, then 250,000 is the maximum, I'm not saying you have to put all that in there, but that's the maximum you should consider for any type of annuity or annuities total.


Hey, let's talk about Inflation. The gorilla in the room, the financial gorilla, everybody's talking about inflation. Can Single Premium Immediate Annuity solve for inflation? Yes and no. And let me explain that. The yes part is that you can attach a COLA, Cost of Living Adjustment. That's what it stands for. For the Immediate Annuity payout, you can choose the percentage. Let's say you say, okay, I wanted to increase by 3 percent and say wait, Stan, that sounds great. It's going to increase by 3 percent every single year. Calm down; you already own the best inflation annuity on the planet is called Social Security. I mean, that is the best inflation annuity on the planet. But, when you buy an annuity out on the street from these huge carriers, you say, I want to put a cost of living adjustment. This is the Single Premium Immediate Annuity without the COLA, which is the one with the COLA.

In other words, this is where they start. All right, so they're not giving it away. You can put a COLA on a Single Premium Immediate Annuity, but it's just going to take some time to catch up with the same Immediate Annuity that doesn't have a COLA. That doesn't mean that you don't buy one with a COLA. What I would tell you to do if you're thinking about Immediate Annuities, you might buy one with and one without. But just remember you already own the best inflation annuity on the planet, Social Security.

No Fees

The good thing about Single Premium Immediate Annuities is that they have no annual fees, no moving parts, and no market attachments. I love it when consumer advocates say, why are annuities because they're high in fees?. Single-Premium Immediate Annuities have no fees. There are commissions paid to the annuity agent or whoever sells it to you on any type of annuity. But it's part of the administrative costs, just like light bills, water bills, whatever. When you put $100,000 into an Immediate Annuity, you have $100,000 to work for you. That's just a fact.

So when someone says, well, those are expensive? No, they have no annual fees. I was looking at my Facebook the other day, and someone said that annuities provide benefit payments starting immediately, which is Single Premium Immediate Annuities. So then the follow-up question is, when do payments start with an immediate payout annuity, an immediate annuity as soon as 30 days up to a year? So when the policies are issued on that issue date, that money will hit your bank account as soon as 30 days.

With Single Premium Immediate Annuities, you can get three types of quotes. The first is Life Only, and that's what people think that the only thing that's out there with Single Premium Immediate Annuity. That means life only as the highest payment you can get is based on your life expectancy. Then there's what's called Life With A Period Certain or a Cash Refund or Installment Refund. What does that mean? That means it will pay you as long as you're breathing. No matter how long you live, if you live forever, there's a medical miracle the annuity company is on the hook to pay.

Transfer of Risk

That's the transfer of risk-benefit proposition that only annuities can provide, but you can attach to that lifetime income guarantee. Say, Stan; I don't want a penny to go to the annuity company. I wanted to go to my family. You could do life with a cash refund or life with an installment refund, or you could do life with a period certain, giving an example on periods certain. Let's just say he said I want a life with ten year period. What does that mean? That means it's going to pay you for the rest of your life, but if you die in your two, there are eight more years of payments, or if you die in your seven, there are three more years of payments, but if you die in your 11, there are no payments for the beneficiaries. You don't have to do life in 10; you could do life in 15, life in 20, life in 30, whatever.

That's the customization part of a Single Premium Immediate Annuity. And then life with cash refund means when your Learjet hits the mountain; you die, whatever is left in the account. Remember, the income is the return of principal plus interest, but whatever's left goes to the beneficiaries. Life with an installment refund means that you don't want them to get the lump sum, but they will get all the money in the same amount.

So just remember, you don't have to allow the annuity company to keep a penny even though they're on the hook to pay. You can structure it however you want to. The last type of payment with a Single Premium Immediate Annuities, if you said you know what, I just want a period certain, I don't want a lifetime income payment stand. I just wanted to pay for ten years or 15 years or 17 years or 20 years. Give an example. You said I want 20 years, certainly not living in 20, 20 years. That means somebody, you, or whoever the list of beneficiaries is on the policy will get 20 years of payment. At 21, no more payment. If you did live in 20, you're going to get paid for the rest of your life regardless of how long you live. But let's just say you died in year 13 with life in 20; there are seven more years of payments. Get it? Of course, you do.

Never forget to live in reality, not the dream, with annuities and contractual guarantees! You can use our calculators, get all six of my books for free, and most importantly book a call with me so we can discuss what works best for your specific situation.

Learn More