Single Premium Immediate Annuity (SPIA)

An immediate annuity is a guaranteed retirement income you can purchase to protect your longevity and minimize the risk of outliving your savings.

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Single premium immediate annuity

What is a Single Premium Immediate Annuity?

An immediate annuity is a guaranteed retirement income you can purchase to protect your longevity and minimize the risk of outliving your savings. When you buy an immediate annuity, you convert a portion of your savings into a monthly paycheck that starts within one year and continues for as long as you’re alive. 

Whether purchased with funds from your individual retirement account or personal savings, an immediate annuity turns a portion of your assets into guaranteed income, either for life or a specified period of time.

Use our immediate annuity calculator.

NOTE: You may hear a single premium immediate annuity referred to by a few different names:

There are many different sub-types of annuities which can make them seem overwhelming.  While the focus of this guide is immediate annuities we believe a quick overview of the various types of annuities will prove helpful.

There are only two primary classifications of an annuity:

      1. Deferred Annuity
      2. Immediate Annuities

For an annuity to be considered an immediate annuity, guaranteed income payments must begin within the first twelve months after purchase. If not that is not the case then you are looking at a deferred annuity.

There are other income annuities, called Deferred Income Annuities (DIAs), or longevity annuities. They are considered deferred because the owner must defer payments for at least one year.

While a single premium immediate annuity is the only immediate annuity, they have many different payout (customization) options. Let’s take a look at what those options are and how they differ.


Immediate vs. Deferred

Deferred Annuity

Any annuity that doesn’t begin the income phase with-in twelve months from the issue is considered a deferred annuity. All annuities come with the option to be converted into a lifetime income stream. 

However, many deferred annuities are bought with no intention of ever being turned into a lifetime income. Oftentimes, deferred annuities are used as a safe way to save for retirement with the benefit of tax deferral.

Immediate Annuities

A single premium immediate annuity is the only type of immediate annuity. To be classified as an immediate annuity, an annuity contract must begin to make payments within 12 months from initial contract date. A single premium immediate annuity is a contract you purchase from an insurance company with a single lump sum premium (purchase amount). 

You can elect to have your income payments begin as soon as 30 days from issue, or, defer your payments start for up to 11 months.

Immediate Annuity Payout Options

Period Certain – A period certain payout option guarantees an income stream for a set period of time. Most often 10 or 20 years.

Single Life Only – Guarantees monthly income payments for as long as you are alive. With this option, there is no guarantee all of your purchase premium will be paid back in the instance you should die prematurely.

Joint Life – Guarantees monthly income payments for as long as you and another person are alive. Most companies reserve joint life policies for spouses or domestic partners but not all.

Life (or Joint Life) with Installment Refund – Guarantees payments as long as you, or both of you, are alive. If both parties to the contract should die prior to receiving back all of the purchase amounts in the form of payments, the regular monthly payments will be paid to your designated beneficiary until all of your purchase premium has been returned.

Life (or Joint Life) with Cash Refund – with a cash refund option the difference between purchase premium and payments made prior to death, is paid to your elected beneficiary as a lump sum (rather than continuing to make the regular payments).

Deferred Immediate Annuities (Longevity Annuities)

Deferred Immediate Annuity – Almost identical to a Single Premium Immediate Annuity. The only difference being income payments begin 12 months or more after contract date.

Income Annuity FAQs

An income annuity is a type of annuity contract designed to turn a lump some into a guaranteed income stream that can last for life or a specified period of time. Income Annuity Types Include:

1. Immediate Annuity

2. Deferred Immediate Annuity (DIA), or Longevity Annuity

3. Qualified Longevity Annuity Contact

An immediate annuity is an annuity contract designed to turn a lump sum into a guarantee income stream begininng within one year of purchase. In the simplest terms they are a guaranteed lifetime paycheck in exchange for a

Should You Buy a SPIA?

An immediate annuity is a great way to simplify your path to a financially secure retirement. But no single product is right for everyone, and it never makes sense to purchase an annuity with your entire portfolio. In an ideal world, 20% or less of your retirement portfolio would be required to generate a guaranteed floor of income.

Below are some general guidelines that can be useful when determining whether or not an SPIA may be right for you:

A single premium immediate annuity is likely worth considering if…

  • Social Security and/or pension benefits won’t cover your regular expenses
  • You’re about to retire or are already in retirement
  • You’ve accumulated between $250,000 and $5 million in retirement savings
  • You have average or above-average health
  • You’re seeking greater certainty in retirement and more of an insurance product

An immediate annuity is probably not the right product for you if…

  • Social Security and/or pension benefits cover your regular expenses
  • You’re years away from retirement
  • You’ve accumulated less than $250,000 or more than $5 million in retirement savings
  • You have below-average health
  • You’re seeking higher risk and more of an investment product

Immediate Annuities Provide Guaranteed Income

The life insurance industry was built for markets like the ones we are facing now. Life insurance and annuities can be the solution to many of today’s personal financial dilemma’s, as these products are based on math and science. 

As we just touched on above, there are a wide variety of annuities out there, and we have Beginners Guides dedicated to each of them, but right now we are going to look closely at single premium immediate annuities.

I can not stress enough how important this product is to a successful, stress-free retirement. In fact, to retire in an optimal manner you have to use this type of annuity

All of the information published on our website is intended only for educational purposes and is not meant as tax or legal advice. But for a moment, let’s pretend I am your financial advisor so I can show you how simple this really is.


For the purposes of our illustration, I am recommending that you purchase a single premium immediate annuity with a lifetime income payment option. The first thing you'd be likely to say is, "what is a lifetime income annuity."

Here are the words that I use: it's a guaranteed paycheck for the rest of your life. That's all it is: a guaranteed paycheck for life.

Tom Hegna, Author & Retirement Expert Tweet

Paychecks and Playchecks

To make this even easier to understand, let me remind you that you already have a lifetime income annuity – your Social Security Check. Remember, Social Security is simply a guaranteed paycheck for life. If you have a Pension, that is another guaranteed paycheck for life. Social Security and Pensions are examples of lifetime income annuities.

Tom Hegna, who coined the phrase playcheck, wrote a great book titled, “Pay Checks and Play Checks: Retirement Solutions for Life.” In his book, he makes very convincing arguments for having a paycheck and a playcheck. While they are becoming rarer and rarer, the occasional client will say, ” I worked for GM for 37 years. I already have a Pension – I’ve got that covered.”

As Tom Hegna would say, “OK, you have the paycheck. But do you know what you need now? You need a guaranteed “playcheck.” Here’s why, let me prove it to you. On what day of the week do you spend the most amount of money right now? What day of the week do you enjoy a round of golf, or hit your local Lowe’s, go to the spa, or go shopping? 

For most of us that day would be Saturday – and remember, when you retire, an everyday single day is a Saturday. Many Boomers are not going to need less money when they retire, they are going to need more of it. So I would say that you do not just need a paycheck for essential expenses in retirement, you also need a guaranteed “playcheck” as well. That’s all a single premium immediate annuity is – a guaranteed check for the rest of your life.

Immediate Annuity Payout Rates

Single premium immediate annuity chart showing income per 100k
Source: as of July 14th, 2020

Now take a look at the below table of the best CD rates available. 

According to, as of 7/14/2020, the best 5 Year CD, offered thru Marcus by Goldman Sachs, has an APY of 1.15%.


Best CD Rates

Financial InstitutionTerm (months)RateMinimum
Bethpage Federal Credit Union30.40% APY$50
Navy Federal Credit Union30.40% APY$1,000
BrioDirect30.25% APY$500
Quontic Bank60.60% APY$500
Limelight Bank60.50% APY$1,000
MySavingsDirect60.30% APY$1,000
Navy Federal Credit Union90.50% APY$1,000
VyStar Credit Union90.35% APY$500
Discover Bank90.30% APY$2,500
Delta Community Credit Union120.80% APY$1,000
Quontic Bank120.65% APY$500
Ally Bank120.60% APY$0
Delta Community Credit Union240.95% APY$1,000
Quontic Bank240.70% APY$500
Live Oak Bank240.70% APY$2,500
Delta Community Credit Union361.05% APY$1,000
Quontic Bank360.75% APY$500
Navy Federal Credit Union360.70% APY$1,000
VyStar Credit Union480.90% APY$500
First Internet Bank of Indiana480.86% APY$1,000
Golden 1 Credit Union480.80% APY$500
Delta Community Credit Union601.25% APY$1,000
First National Bank of America601.00% APY$1,000
Golden 1 Credit Union600.90% APY$500

Annuitization Actually Increases Liquidity

As we learned from the CD and lifetime income annuity tables above there is a big discrepancy between the amount of income generated by these to savings vehicles. You would have to invest $475,000 into a CD to generate the same $5,400 of annual income generated by a $100K deposit into an immediate annuity at age 65.

Now I know what you may be thinking and it is true, the $100K placed into an income annuity is gone forever while you still have access and control over any funds placed into a CD. While you are correct, many often misconceive this for more liquidity. The same is true if you were investing your money into a bond portfolio; you do have more instant access to your funds.

However, if you are counting on the interest generated from a CD or any fixed-income investment, the money really isn’t liquid. Because if you were to take more than the interest earned your future interest income will be reduced.

Single Premium Immediate Annuity Myths

Many investment advisors and clients alike falsely believe investing a portion of your retirement nest-egg into a lifetime income annuity reduces liquidity. But let’s just go with our example above and say that you have $500K and wish to generate lifetime income at your current age of 65. 

For simplicity, you only need to generate $5500 of annual income. You could tie up almost all of your available assets in a CD to generate the monthly income desired, or, you could play the bond markets and try to squeeze out 3% or so by managing durations. Since we are talking fixed income, investing in equities is not a great option due to the sequence of returns risk.

Withdrawing your monthly paycheck from a portfolio that is negative due to market fluctuations can have a drastic negative impact on how long your money will last. This is especially true if a negative year occurs in the first 5 years of your retirement.

Using a lifetime income annuity, you could annuitize and invest the rest. Since your desired guaranteed monthly paycheck is covered by the $100,000 placed into an income annuity, the remaining $400,000 is more liquid as you don’t have any immediate need to access it for income. 

This allows more flexibility and the capability to invest more aggressively since the sequence of returns and longevity risk have already been mitigated using a single premium immediate annuity.

Monte- Carlo simulators will agree that incorporating an annuity into a retirement portfolio will provide more income, with less risk of outliving your money. If you are approaching retirement or already enjoying it,  an income annuity can simplify your path to a financially secure retirement.

Restricted Single Premium Immediate Annuities

How this Annuity Works

You purchase the annuity with one premium payment. You work with your advisor to determine the certain period payout time over which the Restricted Single-Premium Immediate Annuity will pay.


The Restricted Single-Premium Immediate Annuity includes the following restrictions:
  • The contract is: (a) nontransferable; (b) non-forfeitable; (c) nonassignable; (d) non-surrendable (e) non-commutable; and (f) irrevocable.
  • Neither you nor any payee may change a designated payee under the contract.
  • Neither you nor any payee may change the form or mode of payment under the contract.
  • The contract has no cash value.

For Medicaid Eligibility

A Restricted Single-Premium Immediate Annuity is designed to help you if your goal is to qualify an institutionalized spouse for Medicaid eligibility. Generally, assets placed within a Medicaid-compliant annuity will no longer count as available assets for purposes of Medicaid eligibility. State Medicaid rules define the maximum length of your certain period payout. The rules do vary from state to state. So, you will need to seek advice from an elder law attorney or advisor with expertise in Medicaid annuities. Medicaid annuities are regulated by the Internal Revenue Code, state insurance law, and state Medicaid law. Some contract features and options may not be available or similar in all states because state governments oversee insurance companies. If the annuitant dies before the end of a certain period, some states will require the state to be named primary beneficiary for purposes of potentially refunding the state for some of the state expense associated with Medicaid payments. Any remaining payments will be paid to the subsequent beneficiaries until the end of the payment period.
A guaranteed income is paid from the time period used for the annuity to qualify as a Medicaid annuity. If the annuitant dies prior to the end of the period specified, payments continue until the end of the period to the applicable beneficiary(ies).

Period Certain Payments

In all Medicaid planning scenarios, work with a qualified Elder Care Attorney. Availability and eligibility vary by state. Medicaid annuities are regulated by the Internal Revenue Code, state insurance law, and state Medicaid law. Some contract features and options may not be available or similar in all states because state governments oversee insurance companies. The Standard cannot guarantee Medicaid eligibility.

Rates may change without notice. Products of Standard Insurance Company. Product features and availability varies by state.

How are Single Premium Immediate Annuities Taxed?

Immediate Annuities can be purchased with qualified or non-qualified funds. However, you can not purchase a single annuity with both qualified and non-qualified funds; they cannot be “co-mingled”.

Qualified funds are those contained within a tax-qualified account, such as an IRA. Non-qualified funds encompass everything else, except those funds held within a tax-qualified account.

When an immediate annuity is purchased with qualified funds, the entire payment received each month from the qualified annuity is fully taxable as income, because taxes have never been paid on those funds. 

However, when an immediate annuity is purchased with non-qualified funds, a portion of each monthly income payment is considered a return of previously taxed principal (cost basis) and therefore excluded from taxation.

The amount excluded from taxation is called the exclusion ratio.

Exclusion Ratio = Investment in the Contract ÷ Expected Return

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