Why Single Premium Immediate Annuities (SPIAs) Work

Hi there, Stan The Annuity Man, America's annuity agent, licensed in all 50 states, including yours. I'm glad you joined me. Today, we will discuss the granddaddy of all annuities: Single Premium Immediate Annuities (SPIAs). I’ll explain why they work, why they remain the most efficient and pro-consumer annuity type, in my opinion, and why they embody the simplicity that annuities need.

Unlike the flashy, heavily promoted annuities you might hear about on TV or radio, SPIAs are straightforward. They have no moving parts, no annual fees, and low commissions. They do exactly what they say they’ll do. Today, we’ll dive into their benefits and limitations. Let’s get started.

Explaining SPIAs to a Nine-Year-Old

I always say, never buy an annuity you can’t explain to a nine-year-old—no offense to nine-year-olds! Here’s how I’d explain SPIAs to a group of second graders:

You give the annuity company your money, and they pay you a lifetime income stream. If you live forever, it pays forever. If you live to 150, it still pays. The older you are when the income stream starts, the higher the payment. It’s just like Social Security, which is also an annuity and the best inflation-protected annuity on the planet.

Johnny raises his hand: “Mr. Annuity Man, what happens if you die? Does the evil annuity company keep the money?” Good question, Johnny! That’s called “life-only,” but you can structure it so 100% of any unused money goes to your beneficiaries. You can choose options like a lump sum refund or payments to beneficiaries. It’s all about transferring risk, and even nine-year-olds understand that.

Key Features of SPIAs

SPIAs are versatile. You can use them with an IRA, non-IRA, or Roth IRA. The contract remains the same, but the taxation of the income differs. SPIAs also have “cousins” like Deferred Income Annuities (DIAs) and Qualified Longevity Annuity Contracts (QLACs). These products share SPIAs’ simplicity: no moving parts, no fees, and guaranteed lifetime income based on life expectancy.

Timing Your SPIA Purchase

I often hear this from clients: “I’ll wait until interest rates go up before buying a SPIA.” While interest rates do play a role in pricing, life expectancy is the primary factor. Yes, higher interest rates can increase payments slightly, but delaying your purchase means missing payments in the meantime. If you wait five years, for example, you lose 60 payments. It’s crucial to factor in how long it will take to recoup those missed payments.

Why SPIAs Are Reliable

SPIAs are guaranteed-issue products, meaning no medical underwriting. You’re grouped with others in your age range, and the product is priced based on life expectancy. This reliability is why life insurance companies that issue SPIAs have big buildings: they know when people will die and price accordingly. SPIAs have been around since Roman times and were used initially to provide lifetime income for soldiers. Today, they’re a commodity product, like a gallon of milk, with quotes that change every 7-10 days.

Customizing SPIAs

SPIAs are highly customizable. You can structure them for single or joint life, include survivor benefits, or even set a specific payout period (e.g., 15 or 20 years). The starting point is always the same: What do you want the money to contractually do, and when do you want those guarantees to start? After that, we can refine the details based on your goals and beneficiaries.

Conclusion and Resources

SPIAs aren’t perfect for everyone but are efficient, straightforward, and reliable. If you want to learn more, visit my The Annuity Man, where you can download a copy of my book on SPIAs. Let’s connect to discuss your specific needs and find the best SPIA for your situation.

Never forget to live in reality, not the dream, with annuities and contractual guarantees! You can use our calculators, get all six of my books for free, and most importantly book a call with me so we can discuss what works best for your specific situation.