SPIA Explained

A Single Premium Immediate Annuity (SPIA) is a financial product designed to provide a steady income stream in exchange for a one-time lump-sum payment. Typically used for retirement planning, a SPIA begins distributing payments immediately (or within a year of purchase) and continues on a regular schedule, often monthly or annually. These annuities appeal to those seeking guaranteed income, as they help protect against outliving one’s savings.

When purchasing a SPIA, individuals can choose options like a fixed or variable payment structure, with the former providing consistent payouts and the latter potentially fluctuating based on market performance. Additionally, SPIAs can be structured for a specific period or for the annuitant’s lifetime. In some cases, they also include options for beneficiaries, ensuring that any remaining funds go to heirs if the annuitant passes away prematurely.

The key advantage of a SPIA is its ability to deliver predictable income, making it ideal for people wanting stability in retirement. However, SPIAs are generally illiquid, meaning once purchased, the lump-sum payment is non-refundable, and withdrawing funds early can incur penalties. This trade-off between security and flexibility is crucial when considering if a SPIA is the right choice.