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What Is A Single Premium Immediate Annuity

Stan Haithcock
December 27, 2021
What Is A Single Premium Immediate Annuity

What is a single premium immediate annuity? How does it work? Should you own one? We're going to dive into many things concerning single premium immediate annuities. We're also going to go through; should you even own one? We're going to go through the details of how you can make that decision.

Why would you want to own a single premium immediate annuity? What a single premium immediate annuity pretty much stands for is what I call income now®, which is a guaranteed lifetime income stream that you can never outlive. That income stream can start as soon as 30 days and as far as one year. I call it a personal pension. Your company might provide a pension. This is a personal pension. It also feels what I call your income floor. It's an income gap of guaranteed income that you can set up for yourself or for you and your spouse and partner that you can never outlive.


What's the history of SPIAs? How long have they been around? Single premium immediate annuities have been around since Roman times. They were developed for the Roman soldiers to provide a lifetime income stream for them and their families. Italy was the only annuity type sold until about the 1950s. It is the only product; annuities are the only products that solve for lifetime income, meaning you can never outlive your income. I always say there's no ROI; there is no return on investment until you die. That's a single premium immediate annuity.

What does a single premium immediate annuity solve for? They solve for a lifetime income. You can never outlive it. It's part of your income floor. If you have a pension, Rental or dividend income needs that gap field; a single premium immediate annuity. Can contractually do that. Remember, a single premium immediate annuity is your pension; a client of mine the other day said, "Stan, my wife and I need $1500 a month as a gap filler." They were also preparing for inflation, which immediate annuities can do because you might need extra money.

Income Now

I call this type of money that guarantees money that's hitting your bank account every single day. They need $1500 a month. What we did is we reverse-engineered the quote to solve for $1500 a month starting in 30 days for the rest of both of their lives, and when one of them died, the income stream continued uninterrupted and unchanged for the second person's life. We also structured it that when they both die, whatever money is left in the account goes 100 percent to the beneficiaries. Let's go over the benefits of a single premium immediate annuity.

Number 1, it's a lifetime guarantee. You can never outlive the income stream. Number 2 is customizable. You can customize your choices. There are no annual fees. You can set up the joint with your spouse, partner, or someone else. Single premium immediate annuities allow you to customize the quote and customize the income stream. There are no annual fees; single premium immediate annuities provide the highest contractual guaranteed payout of all annuity types. There is an efficient transfer of risk strategy.


They're easy to understand, and you can use single premium immediate Annuities in an IRA, a non-IRA, and a Roth IRA. Now, with all annuity types, they have limitations. Single premium immediate annuities have limitations as well. Let's talk about those. Number 1 is a very rigid contract. It's a liquid. In other words, you can't have the payments start with a single premium immediate annuity, then call me up and say, I don't want to do that anymore; send me the money. Think of it as like ripping the knob off a waterfall, so the water's going to flow.

Once the income stream starts, it's going to hit your bank account for the rest of your life, so understand that. The other limitation of a single premium immediate annuity is that it has no market growth attachment. I feel that that's a positive, but some people think that's a loss of opportunity. Another limitation of single premium immediate annuities is that the payments are static. They're going to remain the same unless you attach what's called a COLA increase, a cost of living adjustment increase at the time of application. But remember, annuity companies have significant buildings for a reason, they don't give anything away.

If you add that type of increase to the income stream, they will significantly lower the payment. Suppose you're interested in a cost of living Adjustment increase. In that case, I will encourage you to quote both with the cost of your living adjustment increase and without, so you can see how the annuity company’s price increased your income.

Structuring the Contract

Let's go over how you structure the contract within an immediate annuity. Remember, it's a contract. You can have a joint life or you could also have a specific period called a certain period. Or you could combine it. You can say I want it in my life with a period certain. You just have to tell me what you want it to do. Always tell people there are two questions with an annuity; what do you want the money to do contractually? When do you want those contractual guarantees to happen?

I want to clear up one misconception about structure and annuities. Most people think when you buy a single premium immediate annuity, and you die, the money goes poof, and the evil annuity company keeps it. That's only 1 of about 30 ways to structure; that’s called life-only. That is the highest payout, but you don't have to do that, and most people's structured. The lifetime income guaranteed that the annuity companies are on the hook to pay. But also, if you die, 100 percent of any unused money goes to your list of beneficiaries so you can transfer the risk to the annuity company with the peace of mind knowing that 100 percent of that hard-earned money that you're putting in that immediate annuity is going to go to someone in your family. Let's talk about quoting a single premium immediate annuity.

Getting a SPIA Quote

You've decided that it might be for you. How do you go about getting into the quote? Well, first of all, understand that with single premium immediate annuities, like commodities, there's no one best single premium immediate annuity; you quote all carriers. Think of it like this. It's like a gallon of milk. When you buy a gallon of milk at the store, it expires and goes bad after about 7-10 days—the same thing with a quote with an immediate annuity. You get the quote, we sent you the quote, and 7-10 days later, we would have to re-quote it unless you've moved forward with the paperwork.

It's like buying a plane ticket. When you buy a plane ticket, you don't pick a carrier; you punch in precisely what you want and get the best guarantee. The same thing with single premium immediate annuities, quote all carriers for the highest contractual guarantee for your specific situation. Finally, let's discuss where a single premium immediate annuity fits in your portfolio. Remember the two questions, what do I want the money to do contractually? When do I want those contractual guarantees to start?

If you answer, I don't need income. Guess what? You don't need a single premium immediate annuity. Still, if you need lifetime income, that's where you need to start the quoting process and see if it fits your specific situation. Also, remember, the primary place that fits your portfolio is income. It's a gap filler for income. It's a pension that you can never outlive, so it's not like an investment in The stock market or stock market investments that can go up and down. This is a guaranteed income stream that you can never outlive. Recently, I had a client who was very worried about putting too much money in a single premium immediate annuity.

I agree with that. You have to be very careful about allocation and proportion. He wanted growth in the market, but he also wanted a guaranteed income floor. What we figured out was precisely the income stream that he needed. We solve for that contractually with a single premium, immediate annuity. Then the rest of his money, he kept in the markets, which by the way, he's a better investor because of that because he didn't have to worry about that income floor because it's contractually guaranteed with a single premium immediate annuity. He got to have his cake and eat it too because he stayed in the market investing.

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.

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