So why would you even want to own a Single Premium Immediate Annuity? It's for income. You only ask two questions for buying any annuity type. What do you want the money to contractually do? And, when do you want those contractual guarantees to start?
The answer for Single Premium Immediate Annuities is I want income now. I need a pension. Single Premium Immediate Annuities solve for a lifetime income stream you can never outlive.
It will pay. If you live to 150, they'll pay. If there's no money in the account, the annuity companies are on the hook to pay. That's the benefit proposition that only annuities offer. So where does it fit? It fits like it's an income gap filler. It's a pension product. So, think of a Single Premium Immediate Annuity as your personal pension.
What Does It Solve?
What does Single Premium Immediate Annuity solve for? They solve for lifetime income. You can never outlive it. Return on investment is whatever it talks about. What's my return on investment? With a Single Premium Immediate Annuity, I always say, "There's no ROI till you die." We don't know because it will pay you for the rest of your life. If you set it up joint with your spouse, and if you die, the income stream will continue uninterrupted and unchanged for your spouse. So, think of it as a pension. Think of it as an addition to Social Security. It's an income gap filler. If you need a specific amount in addition to Social Security or a pension if you're so fortunate to have one, that's what a Single Premium Immediate Annuity solves for.
It's a contractual guarantee for the rest of your life. You can never outlive it.
They are customizable. You can structure it any way you want.
They provide the highest contractual guaranteed lifetime income stream of any annuity product.
There are no annual fees.
They're easy to understand.
They're a transfer of risk. You're transferring the risk to the annuity company to pay you for the rest of your life.
They can be used in IRAs, non-IRAs, and Roth IRAs.
You receive a combination of return of principal plus interest. So outside of an IRA, you won't pay taxes on the principal, you're only going to pay taxes on the interest.
Limitations of SPIAs
They're very rigid. It's a rigid contract.
Once the income stream starts you can't stop it. It's an irrevocable contract.
There's no market-type growth, so there's a loss of opportunity.
You don't want to put too much money into an Immediate Annuity. What you want to do is solve the income gap that you need contractually, for as little money as possible.
Structuring a SPIA
You need to tell me exactly how you want the money to work, and I'll let you know the structuring we need to do. It might be just your life, and it might be joint life with a spouse. It might be a period certain or for a specific period of time, or it might be a combination of the two.
Understand that life-only is the highest contractual payout, but when you die, money goes poof. But understand that most people don't structure it that way. Some do. The annuity company is on the hook. You have transferred the risk to them to pay you for the rest of your life, regardless of how long you live.
We can set it up so that when you die or the first spouse dies, the second spouse gets the money to continue, payment-wise, uninterrupted and unchanged for their life. And when they pass, 100% of the money goes to the beneficiaries.
We can structure it exactly how you want us to structure it. If you want increases to the income stream, understand that the annuity company will lower the initial payout if you attach that Cost of Living Adjustment, COLA, and rider. And that's okay. We would encourage you to look at both quotes. You can also split the money. Part of the money can be a static payment, and the other part can be getting an increase.
When you quote a Single Premium Immediate Annuity every seven to 10 days, if you don't decide, you have to requote it. So, understand it's a commodity. The quotes change, and carriers at the top change. There's not one that's better than the other. You have to quote all carriers.
Where Do SPIAs Fit?
You have a portfolio of stocks and bonds, 401(k), etc., so where do Immediate Annuities fit? They fit for pension income. If you need income right now, that's where it fits. It's an income gap filler. You can come to me and say, "I have X amount lump sum. How much guaranteed income can I get through a Single Premium Immediate Annuity?" Or we could reverse-engineer the quote and tell me I need X amount per month. How much premium will it take?" But it's a gap filler. And you need to make sure that you're putting as little money into a Single Premium Immediate Annuity to solve for a specific contractual guarantee you're trying to achieve.
Alternatives to a SPIA
An alternative to a SPIA is a DIA, a Deferred Income Annuity that doesn't start paying income until a later date, (similar to a QLAC for traditional IRA's)
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