A single premium immediate annuity turns a lump sum into a guaranteed paycheck that starts within a year. This page covers the terms that decide how large the check is, how long it lasts, what your family gets, and what you give up to get it.
An immediate annuity is the plainest form of insurance against outliving your money. You hand the carrier a single premium, pick a payout option, and the carrier pays you a fixed amount every month for life, for a set number of years, or both. There is no account value to watch and nothing to manage.
Almost every question we get about SPIAs comes down to three things: why the payout rate is not an interest rate, which payout option to choose, and what happens if you die early. The groups below take those in order, then cover pricing, liquidity and the comparisons people ask about most.
Usually the wrong answer when
A SPIA is the wrong answer if you may need the lump sum back, if you have no other liquid savings, if you are in poor health and buying a life-contingent option without medical underwriting, or if your essential expenses are already covered by Social Security and a pension. It is also wrong for money you want to leave to heirs; a life-only payout leaves nothing.
Six ideas that explain the whole product. If you understand the payout rate and mortality credits, every other term on this page follows.
What is a SPIA, and how is it different from the annuities that have an account value?
DefinitionA single premium immediate annuity (SPIA) is a contract in which you pay a carrier one lump sum and the carrier pays you a fixed, guaranteed income starting within a year, for life or for a set period.
A SPIA skips the Accumulation phase entirely. The premium goes in, Annuitization happens at issue, and the first check arrives within the Income start window. There is no Account value, no Surrender charge, no renewal rate and no index. The payment amount is fixed on the day the contract is issued and does not change unless you bought a Cost-of-living increase rider.
What you choose at purchase:
The premium is pooled with other buyers’ money. Survivors are paid partly from the premiums of those who die early, which is what lets a SPIA pay more than the same dollars in bonds. See Mortality credits.
Illustrative
A 70-year-old puts $100,000 into a life-only SPIA. Based on quotes MAS ran in October 2026 for a $100,000 non-qualified premium, top carrier rated A- or better, the payout is $771 a month, $9,249 a year, for as long as he lives.
If he lives to 95 he collects $231,231. If he dies at 72 he collects $18,498 and the contract ends. Nothing passes to his family in either case.
Watch for
A SPIA is insurance, not an investment. It is bought for the guarantee that the check keeps coming, and it is priced so that early deaths subsidize long lives. Buy it with the slice of money whose job is covering essential expenses, never with the slice you may need back. See Irrevocability.
Related: Payout rate · Mortality credits · Irrevocability · Immediate annuity · Deferred income annuity
The quote says 10%. Is that the interest rate I am earning?
DefinitionA SPIA payout rate is the annual income divided by the premium; it includes return of your own principal and is not an interest rate or a yield.
If a 75-year-old man pays $100,000 and receives $10,742 a year, the payout rate is 10.7%. Most of that $10,742 is his own money coming back. The interest the carrier is actually crediting inside the contract might be 4% to 5%, and the rest of the payment is principal plus a share of Mortality credits.
Three things push the payout rate up, and none of them is a higher return:
- Older age: fewer expected payments, so each one is larger.
- Fewer guarantees: Life only pays more than Life with cash refund because nothing is promised at death.
- Single life: covering one life pays more than covering two.
The honest comparison is to ask how long you must live to get your premium back, and what the money would have earned elsewhere over the same years. On most life-only SPIAs the break-even is about 12 years at 65 and about 9 years at 75.
Illustrative
$100,000 life-only SPIA at age 75, $10,742 a year. After 5 years he has received $53,711, all of it his own premium coming back. After about 9.3 years he reaches $100,000. Every payment after that is interest and mortality credits. The payout rate was 10.7% from day one, but the return she realizes depends on how long she lives.
Watch for
Sales material that puts a SPIA’s “10%” next to a bond’s “4.5%” is comparing a payout rate to a yield. They are different things. Ask the agent for the internal rate of return at your life expectancy if you want a number you can compare to a bond or a MYGA. Also compare it to an income rider’s Payout percentage, which is the same kind of number, not a growth rate.
Related: Mortality credits · What sets the payout · Payout percentage · Life only · Exclusion ratio
How can a SPIA pay more than I could earn on the same money in bonds?
DefinitionMortality credits are the extra income survivors in an annuity pool receive because the premiums of people who die early stay in the pool and are paid out to those still living.
A carrier prices a SPIA for a group, not for one person. It knows roughly what share of 80-year-olds will die this year, so it can promise every buyer a payment that only works because some buyers will not collect it for long. The buyers who live long receive their own principal, interest, and a share of the forfeited premiums. That share is the mortality credit.
Mortality credits grow with age. At 65 they add a little to the payout. At 80 they are often larger than the interest component, which is why a SPIA bought late in life pays so much more per dollar than a bond ladder can.
Illustrative
One hundred people aged 80 each put $1,000 into a one-year pool, $100,000 total. The pool earns 4%, so it holds $104,000 at year end. Four of the hundred die during the year and forfeit their shares. The 96 survivors split $104,000, about $1,083 each, an 8.3% return on $1,000. Interest provided 4 points of that. The other 4.3 points came from the four who died: mortality credits.
Watch for
Mortality credits are only paid to survivors. The flip side of the extra income is that your early death funds someone else’s long life. Refund and period-certain options give some of that back to your family, and they reduce the mortality credit by exactly that much. See Choosing a payout option.
Related: Payout rate · Longevity risk · Life only · SPIA vs bond ladder · What sets the payout
What does it mean to insure against living too long?
DefinitionLongevity risk is the risk of outliving your savings; a life-contingent annuity transfers that risk to the carrier by paying for as long as you live, however long that is.
Nobody knows their own lifespan. A 65-year-old couple planning on 25 years of retirement has a meaningful chance that one spouse reaches 95 or beyond. Drawing down a portfolio to cover an unknown number of years means either spending too little, in case the years run long, or spending more and risking running out.
A SPIA removes the unknown for the covered amount. The carrier pools thousands of lives and can afford to pay each one for life because the average works out even when individuals do not. The cost of the insurance is the loss of the lump sum and the lower payout on options that protect heirs.
Illustrative
A 70-year-old has $400,000 and needs $18,000 a year beyond Social Security. Spending $18,000 a year from the portfolio works to about age 99 at a 2% real return. A Life only SPIA on $200,000 could cover roughly that $18,000 for life, leaving $200,000 invested for flexibility and heirs. The trade is a smaller estate if he dies at 75.
Watch for
Longevity insurance is worth the most to people in good health with a family history of long lives, and the least to people with serious health conditions. A standard SPIA prices everyone the same age alike; if your health is poor, see Medically underwritten SPIA or reconsider the purchase.
Related: Mortality credits · SPIA · Deferred income annuity · QLAC · Income rider
Can I change my mind after the payments start?
DefinitionA SPIA is irrevocable: once the free look period passes and payments begin, you cannot cancel the contract, change the payout option, or get the premium back as a lump sum.
Irrevocability is what makes the pricing work. The carrier can pay mortality credits only because nobody can leave the pool once they learn they are ill. The premium, the option, the annuitant and the payment schedule are locked on the issue date.
What you can still change:
- Beneficiary on refund and period-certain options, unless named irrevocable. See Change of beneficiary.
- Bank account and address for the deposits.
- Nothing else on a plain contract. A few carriers offer Commutation or Liquidity riders for a price.
Your only true exit is the Free look period, which runs from delivery of the contract, not from the first payment.
Watch for
Never annuitize the money you might need for a roof, a car or a health crisis. We tell every SPIA buyer to keep at least one to two years of expenses liquid outside the contract. If that is not possible, the SPIA is too large or it is the wrong product.
Related: Commutation · Liquidity riders · Free look period · The liquidity trade-off · Selling annuity payments
How soon does an immediate annuity have to start paying?
DefinitionThe income start window is the period after purchase within which a SPIA’s first payment must begin, generally within one year (commonly 13 months) of the premium date, for the contract to be treated as an immediate annuity.
Tax law and carrier contracts both draw a line between immediate and deferred annuities based on when payments start. A contract whose first payment is due within about a year of purchase is immediate. If you want income to start later than that, the product is a Deferred income annuity, which is priced and taxed somewhat differently.
In practice the window gives you some flexibility:
- Monthly payments usually begin one month after issue.
- Annual payments may be deferred up to a year, which is why the 13-month figure appears in many contracts.
- Choosing a later first payment inside the window slightly raises the payment, since the carrier holds the money longer.
The exact tax definition and the 13-month figure should be confirmed against the Internal Revenue Code definition of an immediate annuity before publication.
Watch for
Do not buy a SPIA because you want “income soon” if soon means three years. A DIA or a MYGA that you annuitize later will usually fit better, and a DIA pays a larger check for the same premium because of the deferral. See First payment date.
Related: First payment date · Deferred income annuity · Deferral period · Immediate annuity · Payment frequency
The payout option decides what your family gets if you die early and, in exchange, how large every payment is. Nine options cover almost every contract sold. The table under Choosing a payout option and the explainer below put them side by side.
What happens to my money if I pick life only and die next year?
DefinitionA life-only (straight life) payout pays a fixed amount for as long as the annuitant lives and stops at death, with nothing paid to anyone else, no matter how few payments were made.
Life only is the purest form of longevity insurance and pays the highest amount per dollar of premium, because every dollar of early-death forfeiture flows to survivors as Mortality credits. The carrier promises exactly one thing: a check every month until the annuitant dies.
It fits when:
- No one depends on the income after you, and heirs are provided for elsewhere.
- Health is good and family longevity is strong.
- The goal is maximum income for essential expenses, not a legacy.
Illustrative
$100,000 at age 70, life only: about $771 a month. The same premium with a 10-year period certain: about $740. With an installment refund: about $727. Life only pays roughly 6% more than the installment refund option, and the price of that extra income is that a death in year two leaves the family nothing.
Watch for
Agents sometimes avoid showing life only because clients recoil at the no-refund feature. It is still the right answer for some single buyers with enough other assets. For married buyers it is almost never right unless the spouse has their own guaranteed income. See Joint and survivor.
Related: Life with period certain · Life with cash refund · Mortality credits · Choosing a payout option · Single life payout
What does “life with 10 years certain” mean?
DefinitionLife with period certain pays for the annuitant’s lifetime, but guarantees payments for a minimum number of years (commonly 5, 10, 15 or 20); if the annuitant dies before the period ends, the beneficiary receives the remaining payments.
The period certain is a floor on the number of payments, not a ceiling. Live past the period and the checks keep coming for life. Die inside it and the beneficiary gets the rest of the guaranteed payments, usually monthly, sometimes as a discounted lump sum if the contract allows.
The longer the period certain, the smaller each payment, because the carrier gives up some mortality credits. A 10-year certain typically costs about 3% of the life-only payment at 65, 4% at 70, 8% at 75 and 14% at 80; a 20-year certain costs considerably more, and at older ages it can push the payout close to a Period certain only contract.
Illustrative
$100,000 at age 70, life with 10 years certain, $740 a month. She dies at 74 after 48 payments. Her son receives the remaining 72 payments of $740, about $53,256. Had she lived to 90, she would have collected 240 payments, about $177,518, and the period certain would never have mattered.
Watch for
Match the period to the real need. A 10-year certain protects against the regret of dying early; a 20-year certain at age 75 is mostly buying a payment stream for heirs at a steep cost to your own income. For heirs, compare Life with cash refund, which usually costs less at older ages.
Related: Life only · Life with cash refund · Period certain only · Choosing a payout option · Beneficiary
Can my family at least get back what I did not collect?
DefinitionLife with cash refund pays for the annuitant’s lifetime and, at death, pays the beneficiary a lump sum equal to the premium minus all payments already received, if that difference is positive.
The refund guarantees that the family, taken together, gets back at least the premium. If the annuitant lives long enough to receive total payments equal to or above the premium, the refund is zero and the contract ends at death like a life-only option.
Because a refund is less valuable to the carrier than a fixed 20-year guarantee, cash refund usually costs less than a long period certain at older ages. The lump sum form is simpler for heirs than the monthly form under Life with installment refund.
Illustrative
$100,000 at age 70, life with cash refund, about $715 a month (representative, a little below the installment refund figure). He dies at 76 after receiving $51,480. The beneficiary receives $48,520 in one payment. Had he died at 85 after receiving $128,700, nothing would be refunded.
Watch for
The refund is of premium, not of premium plus interest. A buyer who dies in year 12 has given the carrier 12 years of interest on a slowly shrinking balance. That is the price of the lifetime guarantee, and it is a fair one for a buyer who wanted both income and principal protection. It is not a reason to pick cash refund over Life only if heirs are already provided for.
Related: Life with installment refund · Life with period certain · Life only · Return of premium death benefit · Choosing a payout option
What is the difference between cash refund and installment refund?
DefinitionLife with installment refund pays for the annuitant’s lifetime and, at death, continues the same periodic payments to the beneficiary until total payments equal the premium.
The refund amount is the same as under Life with cash refund, the unrecovered premium. The difference is timing: installment refund pays it out monthly at the original payment amount instead of in one lump sum. Because the carrier keeps the money longer, installment refund pays a slightly higher monthly amount than cash refund, typically 1% to 2% more.
Illustrative
$100,000 at age 70, installment refund, $727 a month. She dies at 76 after collecting $52,356. Her daughter continues to receive $727 a month until the total reaches $100,000, about 66 more payments, then the contract ends.
Watch for
Installment refund suits a beneficiary who would benefit from steady income rather than a lump sum. It is a poor fit if the beneficiary is a trust or estate that must settle quickly, or if the beneficiary might need the money at once. Check whether the contract lets the beneficiary commute the installments to a lump sum.
Related: Life with cash refund · Life with period certain · Commutation · Beneficiary
How do I make sure my spouse keeps getting the check after I die?
DefinitionA 100% joint and survivor annuity pays a fixed amount for as long as either of two annuitants is alive, with no reduction when the first one dies.
Two lives are covered, usually spouses. The payment is calculated on both ages and continues unchanged until the second death. Because the carrier expects to pay for the longer of two lifetimes, the payment is noticeably lower than a single life payout on the older spouse, often 10% to 20% less at ages 65 to 70.
Joint and survivor can be combined with a period certain or a cash refund, which protects the children if both spouses die early. Each addition lowers the payment further.
Illustrative
Husband 70, wife 67, $200,000. Life only on the husband alone: about $1,542 a month. 100% joint and survivor: about $1,300 a month, representative, paid until the second of them dies. If the husband dies at 75, the wife receives $1,300 a month for the rest of her life.
Watch for
Confirm who the two annuitants are and that the survivor is named as a joint annuitant, not merely as a beneficiary. A single-life contract with the spouse as beneficiary is not a joint and survivor contract; the spouse gets only what the payout option promises at death. Also confirm the contract treats the two lives the same way regardless of who dies first; some older designs do not.
Related: Joint and survivor with reduction · Joint life · Joint life payout · Joint annuitant · Choosing a payout option
Why would I want the payment to drop when one of us dies?
DefinitionA joint and survivor annuity with reduction pays a fixed amount while both annuitants are alive, then continues at a reduced percentage (commonly 75%, two-thirds or 50%) to the survivor for life.
The logic is that one person spends less than two. Accepting a lower survivor payment raises the payment while both are alive. The reduction may apply at either death, or only at the death of the primary annuitant; the contract specifies which, and the two versions are priced differently.
Illustrative
Both spouses 68, $200,000. 100% joint and survivor: $1,290 a month. Joint with 50% to survivor: $1,420 a month while both live, then $710 to whichever spouse survives. If the survivor’s own Social Security covers most of the household’s fixed costs, the 50% option may be the better fit.
Watch for
Check whether the reduction happens at the first death or only at the primary annuitant’s death. “50% to the survivor” where the survivor is always the spouse means the primary annuitant keeps 100% if the spouse dies first; that version pays less than one where the payment drops at either death. The quote should state which you are buying.
Related: Joint and survivor · Joint life · Joint life payout · Choosing a payout option
What is a joint life annuity that stops at the first death?
DefinitionA joint life annuity (first-to-die) pays while both annuitants are alive and stops entirely when either one dies; it is rare, pays the most of any two-life option, and leaves the survivor with nothing.
Because the carrier’s obligation ends at the first death, the expected number of payments is shorter than on a single life, and the payment is higher than any joint and survivor option, and often higher than a single life on either spouse. It is sometimes used when two unrelated people share an expense that ends when either leaves, or to fund a joint obligation with a known end.
Watch for
For a married couple this option is almost always a mistake, and some carriers do not offer it for that reason. If a quote labeled “joint life” pays more than a single life quote on the older spouse, ask whether it stops at the first death. The words “joint life” and “joint and survivor” are used loosely in sales conversations.
Related: Joint and survivor · Joint and survivor with reduction · Life only · Joint annuitant
Can I buy a SPIA that just pays for 10 years, with no life guarantee?
DefinitionA period certain only annuity pays a fixed amount for a set number of years and then stops, whether or not the annuitant is alive; if the annuitant dies early, the beneficiary receives the remaining payments.
There is no life contingency and therefore no mortality credit. The carrier is simply returning your premium plus interest over the period you chose. The payment depends only on the premium, the number of years and current interest rates, not on your age or sex.
Period certain only is used to:
- Bridge a gap to Social Security or a pension start date.
- Pay a known obligation such as a mortgage or tuition.
- Build a SPIA ladder rung that matures on schedule.
Illustrative
$100,000, 10-year period certain, at an illustrative 5.8% internal rate (the rate implied by the October 2026 20-year period certain quote of $706 a month per $100,000): about $1,100 a month for 120 months, $132,000 in total. The extra $32,000 over the premium is the interest. Age does not change the figure.
Watch for
Period certain only competes directly with a MYGA with Systematic withdrawals or a short bond ladder, and those alternatives keep the money accessible. Buy the SPIA version only if the simplicity or the tax treatment under the Exclusion ratio is worth the loss of access. For a gap longer than about 10 years a life-contingent option usually pays more.
Related: Temporary life annuity · Life with period certain · SPIA ladder · Systematic withdrawals · Exclusion ratio
What is a temporary life annuity?
DefinitionA temporary life annuity pays a fixed amount for a set number of years or until the annuitant dies, whichever comes first; it is the opposite of a period certain, since death ends the payments early rather than guaranteeing them.
Because payments stop at death and also stop at the end of the period, the carrier’s obligation is the shortest of any option, and the payment per dollar is the highest. The annuitant takes both risks: dying early forfeits the balance, and living past the period means the income ends.
It is uncommon in retail sales. It appears mainly in pension and structured settlement contexts, or as a bridge for someone who has a guaranteed income starting at a known future date and wants the largest possible payment until then.
Illustrative
$100,000 at age 62, temporary life annuity for 8 years to age 70 when a pension starts. Illustrative payment about $1,365 a month, versus about $1,305 for a period certain only of the same length. If he dies at 65, the payments stop and nothing is refunded.
Watch for
The extra income over a period certain is small at younger ages because few 62-year-olds die within eight years. The forfeiture at death is total. For most bridge needs a Period certain only contract gives up a little income and protects the family entirely. See it as a specialty option, not a default.
Related: Period certain only · Life only · SPIA ladder · First payment date
How do I pick between all these payout options?
DefinitionChoosing a payout option means deciding how much income to give up today in exchange for protection for a spouse or heirs; the option sets what continues at death and, in direct proportion, the size of every payment.
Three questions settle most cases. Does anyone depend on this income after you? If yes, a joint option. Would an early death leave your family short of what you put in? If that bothers you, a refund or period certain. Is maximum income for your own essentials the only goal? Then life only.
Use the explainer below to see how the choices move a monthly figure for your own premium and age. Then get a real quote; the relative gaps between options shift with age and interest rates.
Watch for
Buyers routinely over-insure the early-death risk and under-insure the long-life risk. A 20-year certain at age 75 can cut income by a fifth to protect against an event your other assets could cover. Decide what the money’s job is, then buy the least protection that does that job. If leaving money to heirs is the main goal, a SPIA is probably not the tool.
Related: Life only · Joint and survivor · Life with cash refund · Payout rate · Income rider vs SPIA
Explainer: how the payout option changes the monthly check
Illustrative shapes, not a quote. Life-only income is drawn through payouts MAS quoted in October 2026 for a $100,000 non-qualified premium (about $701 a month at 65, $771 at 70 and $895 at 75, representative at other ages). The other options are factors of life only taken from the same quotes at 65 that ease down with age, and the 20-year period certain is a flat $706 per $100,000 that ignores age. Real quotes vary by carrier, sex, interest rates and the day you buy.
Joint options assume a spouse of the same age. A payout rate is not an interest rate; it includes return of your own premium. See Payout rate.
How often the check comes, when the first one arrives, and whether the payment can rise over time. These are small choices with lasting consequences, since none can be changed after issue.
Can I get paid quarterly or annually instead of monthly?
DefinitionPayment frequency is how often the SPIA pays: monthly is standard, and most carriers also offer quarterly, semi-annual and annual payments, with the total paid per year slightly higher for less frequent payments.
Less frequent payments let the carrier hold the money longer, so the annual total is a little higher: an annual payment is often 1% to 2% more than twelve monthly payments added together. Most buyers still choose monthly because the income replaces a paycheck and because a death between payments forfeits less on a life-only contract.
Payments arrive by direct deposit on a fixed day each period. The frequency is set at issue and generally cannot be changed.
Watch for
On a Life only contract, payment timing matters at death. Most contracts pay nothing for a partial period, so a buyer paid annually who dies eleven months after a payment forfeits most of a year’s income. Monthly payments shrink that exposure to a few weeks.
Related: First payment date · Life only · Monthly interest payout · SPIA
When does the first check arrive?
DefinitionThe first payment date is the date of the first SPIA payment, chosen at application; it is typically one payment period after issue and can be set anywhere inside the income start window.
A monthly SPIA issued on March 15 usually pays first on April 15. You can often choose a specific day of the month to line up with bills or Social Security. Pushing the first payment later, up to the edge of the Income start window, raises the payment slightly because the carrier earns interest on the premium a little longer.
The date also fixes the contract’s payment anniversary, which matters for a Cost-of-living increase rider and for the tax reporting year of the first payments.
Illustrative
$100,000 at age 70, monthly, first payment in one month: $771. Same contract with the first payment deferred 12 months: about $810. The buyer gives up a year of income, roughly $9,249, for an extra $40 a month, which takes about 19 years to recover. Deferring inside the window rarely pays; a true Deferred income annuity prices the deferral properly.
Watch for
Carriers count the income start window from the premium receipt date or the issue date, not the application date. If a transfer from another institution is slow, the first payment date you wrote on the application may need to move. Confirm it on the delivered contract.
Related: Income start window · Payment frequency · Policy issue · Deferred income annuity
Can the payment go up each year to keep pace with prices?
DefinitionA cost-of-living increase (COLA) rider raises the SPIA payment by a fixed percentage, commonly 1% to 5%, every year; in exchange, the starting payment is materially lower than a level payment on the same premium.
The carrier does not give you more money in total; it rearranges the same expected payout into a rising stream. The starting payment on a 3% COLA contract at age 70 is often 20% to 30% below the level payment, and the monthly payment crosses the level payment around year 10. Total dollars received cross around year 18, so only buyers who live well past that come out ahead in nominal dollars.
Figures are illustrative, $100,000 at age 70, life only.
Watch for
A fixed COLA is not inflation protection; it is a guess made at purchase. If inflation runs at 2%, a 3% COLA over-pays late and under-pays early; if inflation runs at 6%, the rider falls behind. For real inflation linkage see CPI-linked payments, which few carriers offer. Many buyers do better with a level SPIA sized for essentials plus a separate SPIA ladder rung bought later.
Related: CPI-linked payments · Increasing income · Level income · SPIA ladder · Riders overview
Is there a SPIA that tracks actual inflation?
DefinitionCPI-linked payments adjust the SPIA payment each year by the change in the Consumer Price Index, so the income rises with measured inflation rather than by a fixed percentage.
The carrier hedges the promise with inflation-indexed bonds, and the hedging cost shows up as a low starting payment, often 25% to 30% below a level payment. Most contracts cap the annual increase, often at 5%, and many do not reduce the payment if CPI falls. Availability is limited; few carriers offer true CPI linkage, and some have withdrawn it.
Illustrative
$100,000 at age 70. Level payment $771. CPI-linked starting payment about $555. If inflation averages 3% a year, the CPI-linked payment passes $771 in about year 12 and reaches about $975 by year 20.
Watch for
The protection is real but expensive. For most retirees, Social Security already provides a CPI-linked income floor, and the SPIA’s job is to cover a fixed layer above it. If true inflation protection matters, compare the CPI-linked quote against a level SPIA plus a reserve invested for growth, and against buying additional SPIA rungs later. See SPIA ladder.
Related: Cost-of-living increase rider · SPIA ladder · Increasing income · Interest rate sensitivity
What the carrier looks at when it sets your payment, why quotes move week to week, and two ways to manage the timing and the health question.
Why did my friend get a higher payout on the same amount?
DefinitionA SPIA payout is set by the annuitant’s age and sex, interest rates on the day of purchase, the payout option chosen, and the carrier’s own pricing; the same premium produces different payments for different people and on different days.
- Age: the single biggest factor. Fewer expected payments means each one is larger. A 75-year-old typically receives 25% to 35% more per month than a 65-year-old on the same premium.
- Sex: women live longer on average and receive a slightly smaller payment on individually priced contracts. Employer-sponsored plans must use unisex rates (Arizona Governing Committee v. Norris), but an individual IRA SPIA may use sex-distinct rates. Montana allowed sex-distinct rates again from Jan 1 2022.
- Interest rates: the carrier buys bonds to fund the payments. Higher yields mean higher payouts. See Interest rate sensitivity.
- Payout option: every guarantee at death lowers the payment. See Choosing a payout option.
- Carrier: the best carrier typically beats the average by 6% to 8% for the same person and option, which is why we quote several.
- State: a few states tax the premium; see State premium tax.
Illustrative
$100,000, life only, same day, same carrier. Man aged 65: $701 a month. Woman aged 65: $672. Man aged 75: $895. Man aged 75 with installment refund: $815. The spread from lowest to highest is about 34% before a single carrier difference enters.
Watch for
Comparing a SPIA quote from last spring to one today, or a friend’s quote to yours, tells you nothing unless age, sex, option and date all match. Insist on quotes from several carriers run on the same day for the same option. See Comparing quotes like for like.
Related: Payout rate · Interest rate sensitivity · Choosing a payout option · Medically underwritten SPIA · Comparing quotes like for like
Should I wait for rates to go up before buying a SPIA?
DefinitionInterest rate sensitivity is how much a SPIA payout changes when bond yields move; a one percentage point rise in long-term rates typically raises a life-only payout at age 70 by roughly 7% to 10%, and a fall lowers it by about the same.
Carriers invest SPIA premiums in long bonds matched to expected payments. When yields rise, a given premium buys more future income. When yields fall, it buys less. The effect is largest for younger annuitants and period certain contracts, because more of the payment is interest; at older ages Mortality credits dominate and rates matter less.
Waiting has a cost that is easy to miss. Every year you wait, you forgo a year of payments and, if you are drawing from the same money, the pool shrinks. Your age also rises, which raises the payout regardless of rates.
Illustrative
Age 70, $100,000, life only. At one rate level the payout is $771 a month. If rates rise one point the next year, the payout for a 71-year-old at the new rates is about $855, roughly 8 points from the rate rise and 3 from the extra year of age. The buyer who waited gave up $9,249 of payments and needs about 9 years of the extra $85 a month to catch up, and if rates had fallen instead the wait lost on both counts.
Watch for
Nobody reliably predicts rates. If the income is needed now, buy now, or split the purchase into a SPIA ladder so that part of the money is priced at each year’s rates. If the income is not needed for several years, compare a Deferred income annuity rather than holding cash waiting for a better SPIA quote.
Related: What sets the payout · SPIA ladder · Deferred income annuity · How carriers set fixed rates · Payout rate
What is a SPIA ladder and why would I buy income in pieces?
DefinitionA SPIA ladder splits the money intended for guaranteed income into several purchases made over a number of years, so each piece is priced at a different age and interest rate and less money is committed irrevocably at once.
Instead of annuitizing $300,000 at 65, a buyer might annuitize $100,000 at 65, $100,000 at 70 and $100,000 at 75. Each later rung buys more income per dollar because the buyer is older. The uncommitted money stays liquid in the meantime, often in a MYGA ladder or short bonds timed to mature at each purchase date.
What a ladder does and does not do:
- Does: average out interest rate timing, keep money accessible longer, let you reassess health and needs at each step.
- Does not: guarantee the later rungs will pay more. If rates fall sharply, the age gain may not cover it.
Illustrative
$300,000 at 65, all at once, life only: about $2,100 a month for life. Laddered: $701 at 65 from the first $100,000, plus about $771 at 70 from the second, plus about $895 at 75 from the third, for a total of $2,365 a month from age 75, assuming level rates. The trade is lower income in the first ten years and the chance that rates move against the later rungs.
Watch for
A ladder requires discipline to actually buy the later rungs, and the money waiting for them must be held safely, not in the stock market. If the whole income is needed from day one, a single SPIA plus a Deferred income annuity for the later years often does the same job with less to manage. See DIA vs SPIA ladder.
Related: MYGA ladder · DIA vs SPIA ladder · Interest rate sensitivity · Period certain only · Deferred income annuity
I have health problems. Can I get a larger payout because I am not expected to live as long?
DefinitionA medically underwritten (impaired risk) SPIA prices the payout on the annuitant’s actual health rather than standard tables, paying more per dollar to buyers whose medical conditions shorten their expected lifespan.
A standard SPIA assumes average health for your age. If you have a serious condition, that pricing works against you: you are subsidizing healthier buyers. An underwritten SPIA asks for medical records and rates you as if you were older, sometimes by several years to a decade, with a correspondingly higher payment.
Conditions that commonly qualify include heart disease, diabetes with complications, COPD, cancer history and kidney disease. The market is small; only a handful of carriers offer it, often through specialty channels, and minimum premiums tend to be higher.
Illustrative
A 68-year-old man with a history of heart failure. Standard life-only quote on $200,000: about $1,485 a month. Underwritten quote rating him as a 76-year-old: about $1,870 a month. The 26% increase is the carrier recognizing that his expected number of payments is smaller.
Watch for
Underwriting makes the SPIA fairer, but it does not change the core question: do you want to insure against a long life you may not have? A buyer with a serious illness and a spouse should look hard at Joint and survivor or a refund option; a single buyer might be better off not annuitizing at all. Also compare the underwritten quote against a Period certain only contract, which ignores health entirely.
Related: What sets the payout · Longevity risk · Life with cash refund · Period certain only · Joint and survivor
A SPIA is designed to be illiquid. A few contracts soften that, at a price, and a secondary market will buy your payments on terms you should understand before anyone calls you.
Can I cash out part of my SPIA if I have an emergency?
DefinitionCommutation is the right, on some SPIA contracts, to exchange some or all of the remaining guaranteed payments for a discounted lump sum; it usually applies only to the period certain or refund portion, not to the lifetime portion.
The carrier calculates the present value of the payments you give up, using a discount rate set in the contract that is typically higher than the rate used to price the annuity, and pays you that amount. The remaining payments are reduced or end. Commutation is never available on the pure life-contingent part of the stream, because the carrier cannot know how many payments that is.
Many contracts allow commutation only by the beneficiary after the annuitant’s death, converting the remaining period certain into a lump sum. Fewer allow the annuitant to commute during life. Some allow it only once, or only after a waiting period.
Illustrative
A 10-year period certain with 72 payments of $740 remaining, $53,256 in total. The contract’s commutation rate is 6%. The lump sum offered is about $44,650. The owner gives up about $8,600 of face value to get the money now.
Watch for
Commutation is a feature you pay for with a lower payout, whether or not you ever use it. Ask whether the contract has it, who can exercise it, and at what discount rate. Do not confuse it with Liquidity riders, which are separate add-ons, or assume that “flexible” in a brochure means either one.
Related: Liquidity riders · Irrevocability · Life with period certain · Life with installment refund · Selling annuity payments
Is there a SPIA that lets me take a lump sum later if I need it?
DefinitionLiquidity riders are optional SPIA features that allow a one-time or limited withdrawal, or an advance of several future payments, in exchange for a lower payment or a fee.
Designs vary by carrier. Common forms:
- Payment advance: receive three to six months of payments at once, then skip those months.
- Percentage withdrawal: take up to a stated share of the remaining period certain value once or twice during the contract.
- Hardship access: a lump sum on nursing home confinement or terminal illness, similar to a Nursing home waiver on a deferred contract.
Every form reduces or pauses later payments and most carry a discount. The lifetime guarantee itself is never withdrawable.
Watch for
A liquidity rider is a reason to make the SPIA slightly smaller and keep the difference in cash, not a reason to annuitize money you may need. The rider’s terms are usually narrower than they sound. If liquidity matters, an Income rider on a deferred annuity keeps an account value you can reach, at the cost of a lower guaranteed payout.
Related: Commutation · Irrevocability · Income rider · Nursing home waiver · Income rider vs SPIA
A company offered to buy my annuity payments for cash. Is that a good idea?
DefinitionSelling annuity payments means assigning some or all of your future guaranteed payments to a factoring company in exchange for a discounted lump sum today; it is legal, often court-supervised, and usually very expensive.
Factoring companies advertise “cash now for your annuity payments.” They buy the right to receive your future period certain or refund payments and pay you a lump sum based on a discount rate that commonly runs 8% to 20% or more, far above what the carrier used to price the contract. Life-contingent payments can be sold too, but at a steep discount because the buyer may never collect, and buyers often require a life insurance policy on you.
A structured settlement is an annuity bought by a defendant’s insurer to pay an award, and a sale of its payments needs court approval in nearly every state, with a judge finding the sale is in your best interest. Transfers without a qualified court order face a 40% federal excise tax on the factoring discount under IRC 5891.
A SPIA you bought yourself has none of those protections. Its payments may be sold without court approval, which removes that check.
Illustrative
120 remaining payments of $1,000, $120,000 face value. A factoring offer of $62,000 implies a discount rate near 15%. The carrier’s own Commutation at 6%, if the contract allows it, would pay about $90,000 for the same payments.
Watch for
Treat any unsolicited offer to buy your payments as a warning sign, not an opportunity. Before signing anything, ask the carrier whether commutation is available, ask a lawyer who does not work for the buyer to review the discount rate, and compare the offer to simply borrowing. Companies in this business are not regulated like insurers, and the contract you sign with them is not reviewed by the carrier.
Related: Commutation · Assignment · Irrevocability · Liquidity riders
My Annuity Store is a licensed insurance agency. This reference is general education, not a recommendation for any product or carrier, and it is not tax or legal advice. Payout figures on this page are based on quotes MAS ran for a $100,000 non-qualified premium; your quote will differ. Actual payouts depend on age, sex, interest rates, the carrier and the option chosen on the day the contract is issued. MAS does not give tax advice. Call 855-277-8088 or email info@myannuitystore.com with questions.
