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Single Premium Immediate Annuity Definition

Stan Haithcock
August 24, 2023

My name is Stan The Annuity Man. Today we're going to talk about the definition of Single Premium Immediate Annuities. Now, I've written a book on that, and I will tell you how to download it for free if you hang in there for this blog.

We're going to cover a lot today. We'll cover what a Single Premium Immediate Annuity is, what it solves for, the brief history of Immediate Annuities, and the limitations and benefits because we have to cover them. After all, all annuities have them. Then we're going to talk about where it fits and how do you quote it. Once again, hang in there because I'll give away the book for free at the end of the blog.

Lifetime Income

Okay, so why would you even want to own a Single Premium Immediate Annuity? I'll tell you why. It's for lifetime income. It's income now, and it's a pension. You can't hate pensions and Social Security and then hate annuities because a Single Premium Immediate Annuity is all about income now. In other words, income starting as soon as 30 days from the policy being issued to as far out as a year. That's a Single Premium Immediate Annuity, and that's why you'd want to own one.

Brief History

What's the history of Immediate Annuities? Pretty interesting story. It goes back to Roman times. The word annua in Latin, and of course, I didn't take any courses in that, as you can tell, but that word means payment. That's where the word annuity comes from. Now, back in Roman times, the dutiful Roman soldiers who were out there laying it on the line for the man, the Roman government came up with a way to provide a lifetime income stream for the Roman soldiers and their families. That's the start of Immediate Annuities. So, you're the Roman soldier. You're going to put together that lifetime income stream for your family and yourself that you can never outlive.

What Does It Solve For?

What does Immediate Annuities solve for? As I said, it's a pension; it's income now. But you have to understand that Immediate Annuity payments are primarily based on your life expectancy, not interest rates. Interest rates play a secondary role. Where do the Immediate Annuities fit as part of that income floor you're trying to generate? You have a pension, if you're so lucky, you have dividend income, you have rental income, and then you need that Single Premium Immediate Annuity to fill in that gap for that money that's going to hit your bank account every single month for the rest of your life. That's where it fits.

What Are the Benefits?

What are the benefits of an Immediate Annuity? It's pretty obvious. You can't outlive the money. People always say, "Hey Stan, what's the ROI on an annuity like this?" ROI means Return on Investment. I don't know that until you die. Now when that happens, I'll come to your funeral, sing a beautiful song with no backing, and work that ROI into the song. It'll be great. No, all kidding aside, you don't know; you're transferring the risk. So, the benefit of an Immediate Annuity is a lifetime income stream you can never outlive. If you set it up joint with your spouse, neither of you can outlive it.

Here's the good thing. When your Learjet hits the mountain, poof, you're dead. That income stream continues uninterrupted and unchanged for your spouse's life. So, that's a good legacy. Hopefully, you're looking down from Heaven or looking up, whichever one it is, and you're saying, "Hey, my spouse is being taken care of." That's the transfer risk nature of an Immediate Annuity. The benefits are simple and easy to understand. A nine-year-old can understand it; no offense to nine-year-olds. But it's just an efficient product for lifetime income.

The Limitations

What are the limitations? Everybody is trying to sell the sizzle, not the steak. What's the steak? What's the truth about these products that you need to know that are limitations? Because listen, annuities are contracts, all types. A Single Premium Immediate Annuity does have its limitations. First of all, it's a rigid contract. There's not a lot of liquidity. You can't call me up two years after you've been getting payments and say, "Hey Stan, send me the money." Picture a water faucet, and you rip the knob off, and the water just flows; that's an Immediate Annuity. Once the income starts, it's going to flow.

Now we can set it up so it will pay for your life, your spouse's life, or whoever. Then, when your Learjet hits the mountain or your Bentley hits the tree, whatever money's unused goes to the beneficiaries, but you're still transferring the risk. The limitation also is people say, "Well, if I put it in the Immediate Annuity, I'm going to lose some growth opportunities. I put that stock I should have bought in the Immediate Annuity." Hey, hindsight's 20/20, right? You can't do that. You either like the guarantee, it's part of the income floor, or it's not.

You can buy Single Premium Immediate Annuities that have some liquidity provisions. But once you do that, remember annuity companies have the big buildings for a reason. Anytime they give something away, they lower the payment. So, when you're buying an Immediate Annuity, know the limitations. It's rigid, it's irrevocable, but it's a lifetime income stream.

How Do You Structure It?

How do you structure an Immediate Annuity? First, you need to understand that structuring an Immediate Annuity is customizable. You're going to have to specifically tell me, "Here's what I want it to do. Here are the people that are involved," etc. Now, most people have this misunderstanding about structuring. They'll say stuff, and this is my client voice, "Stan, when I buy that Immediate Annuity and my Learjet hits the mountain, and the money goes poof, the evil annuity company keeps it." Well, that's a good voice, and that's only one way to structure it. That's called life only. That's the highest payment because you're shouldering some of the risk, but you don't have to do it that way. Most people structure it so that there's a lifetime income stream, but when the Learjet hits the mountain, when the Bentley hits the tree, and you're dead, whatever unused money is in that account goes to your beneficiaries, and the evil annuity company doesn't keep it. You can set up structuring choices for life. There are also ways to do it for just a specific period of time. Some say, "Stan, I just need it for 10 years. I just need a 10-year period certain Immediate Annuity." "Okay, we can do that."

Once again, they are customizable, and you can combine them. "I want a lifetime income stream with a 20-year certain." Now, that happened to me the other day. The guy said, "I want a lifetime income stream, but I want to make sure there's 20 years of payments." Here's the way I explained it to him. I said, "Fred, here it is; it's life in 20. Life with a 20-year period certain. It means if you live forever, it's going to pay you. But let's just say you died in year 5. What does that mean? Life in 20, you die in year 5, there are 15 more years of payments to the 5 beneficiaries. It could be life in 30, life in 15, or life in 10. But the point of the matter is, you can put in that backstop of income, just in case you die early in the policy.

How Do You Get Quotes?

How do you get a quote? That's an obvious answer. You go to my website, and we will quote all carriers because buying an Immediate Annuity is like buying a plane ticket. People say, "Well, who's your favorite Immediate Annuity company?" I don't have a favorite. My favorite's the highest contractual guarantee because you own annuities for what they will do, not what they might do, and the will do is the contractual guarantee. So, we're going to go in there and quote everybody.

Now, understand this, quotes for an Immediate Annuity is like a gallon of milk. It spoils every 7 to 10 days. So, every 7 to 10 days, we have to re-quote it unless you're moving forward with the paperwork, and we lock that quote in. It's a commodity. You have to quote them all. That's how you get the best contractual guaranteed payment for your specific situation. Okay. Once again, where do Immediate Annuities fit in your portfolio? It's a specific place for it. It's the income floor. It's the income floor that you want to hit your bank account. That money to hit your bank account every single month for the rest of your life, just like Social Security, just like your pension, if you're so fortunate to have one.

Free Annuity Owner's Manual

Let's talk about the book. You can download my book for free by going to clicking on this link. No kidding. No obligation. No cost. And there is one more thing I need you to do. I need you to hit the subscribe button on our YouTube channel, because I have videos coming out all the time, every day. I know you're saying, "No way." Trust me, every day, and they're informative, just like this blog.

Thanks for joining me today, and I hope you got a better understanding of what an Immediate Annuity is. I'll see you on the next Stan The Annuity Man blog.

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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