SPIA
A Single Premium Immediate Annuity (SPIA) is a contract that converts a single premium into a stream of guaranteed periodic payments beginning within 12 months of issue. The contract is irrevocable — once annuitized, the principal is no longer accessible and the consumer cannot change the payout election. SPIAs are priced based on the consumer's age, the chosen payout type (life only, joint and survivor, period certain, cash refund), current bond yields, and the carrier's mortality assumptions. The carrier pools longevity risk across many contract holders, allowing it to pay more than a comparable bond ladder by capturing mortality credits from contract holders who die earlier than expected.
A 65-year-old male pays $100,000 for a SPIA. Under a life-only payout, the carrier pays $605 per month for life. Under a 20-year period certain payout (income for 20 years or life, whichever is longer), the carrier pays $565 per month. Under a joint and 100% survivor payout with his 63-year-old spouse, the carrier pays $510 per month for as long as either spouse is alive. The lower payment on the joint payout reflects the longer expected payout duration.
Why it matters
A SPIA is the cleanest tool available for converting savings into guaranteed lifetime income. There are no subaccounts to choose, no caps to monitor, no surrender schedule to navigate. It is also irreversible — which is both the feature and the risk. Consumers who annuitize a large portion of liquid savings into a SPIA lose access to that principal in exchange for the income guarantee.
How to evaluate
Get quotes from at least three carriers — payouts vary 5-15% between carriers for the same age and payout type. Match the payout election to the household (single-life is usually wrong for married couples). Verify the carrier rating (A or higher). Consider whether a period certain or cash refund feature is worth the modest reduction in monthly payment to protect against an early death scenario.
In the contract
The contract is shorter than a deferred annuity contract because there is no accumulation phase. Key terms: "payment amount," "payment frequency," "payout type," "annuitant," "joint annuitant" (if applicable), "period certain" (if applicable), "exclusion ratio" (for non-qualified contracts).
Related terms
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