A single premium immediate annuity (SPIA) is a contract between you and an insurance company where you pay a premium (lump sum) for guaranteed, regular payments over a set period of time or for life. An SPIA will begin paying out immediately, and you can use your SPIA to supplement your retirement.
Additionally, you can customize your SPIA with several different options, such as a scheduled payment timeline and beneficiary advantages, and you can receive a substantial return in interest earnings in addition to your contributions. Here are seven reasons to get single premium immediate annuities.
Guarantees You Income
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Single premium immediate annuities provide you with guaranteed income. When you purchase your annuity, whether it’s a fixed or variable annuity, the insurance company takes on the risks associated with your investments. For fixed SPIAs, your interest rate won’t go below a specific rate. Variable SPIAs provide a “rider,” which guarantees your payouts won’t be below a certain amount.
Easy to Use
Once you finalize your SPIA, you’ll receive a steady stream of income with little maintenance of the accounts on your part. Additionally, your SPIA will come with a systematic and reliable schedule of payments, ensuring you always have a dedicated income.
Because of risk pooling, or spreading out your investment risk across several accounts, mortality credits for your SPIA can increase your returns more than other annuity options. This can help you eliminate the possibility of outliving your assets, especially when you choose a lifetime payment schedule.
Supplement Your Retirement
A single premium immediate annuity can also help you build your retirement savings. When you pair an SPIA with your current pension, Social Security, or 401(k) earnings, you can increase your monthly payments. This can ensure you always have a steady stream of income.
One-Time Cash Advance Options
Single premium immediate annuities also come with one-time cash advance options that you can benefit from. If you have an immediate need for all of your funds, you can request a lump-sum disbursement. This option can vary between annuity insurers, though, so check with an investment advisor to determine the best options for you.
Cost of Living Adjustment (COLA) Options
A cost of living adjustment (COLA) is a rider that you can purchase with your annuity that will increase your payments over time according to fluctuations in the inflation index. While this option can potentially increase your earnings with a boost in inflation rates, your beginning payments may be lower than what you can potentially earn later on.
Beneficiary Options for Your Annuity
While some annuities don’t provide beneficiary options after your death, the majority of them do, especially an SPIA. One beneficiary option that you can choose with your SPIA is the Life With Cash Refund option. This guarantees payment to your heirs from any remaining funds of the deposit after death.
A single premium immediate annuity comes with many benefits, and an SPIA may be the perfect fit for your financial needs. Check with an investment advisor to find out if an SPIA is the best option for you.