If you use a SPIA with a fixed interest rate, your future income is not based on the market. Income payments generally do not fluctuate based on the market.With a SPIA, you can create a stream of guaranteed income that won’t run out. “One of the greatest fears for retirees is running out of money, and this fear is rooted in not being able to control or predict market volatility, healthcare costs, inflation and how long you live,” says Reddy. You generally don’t have to make any investment decisions and there’s less uncertainty over what your future payments will look like. You tell the annuity company how much you want to deposit and the company tells you how much income you’ll receive. SPIAs are less complicated than some other annuity products. In bad years, your payments could drop-but in good years, you could receive more income than you would with a fixed rate. Basing SPIA returns on the market means you take on a bit more risk. How would you like your SPIA rate of return calculated? Depending on your annuity company, you may be able to choose a fixed or variable rate based on market conditions. Would you like your payments to keep up with inflation? If you opt for an inflation rider to help maintain your purchasing power, you’ll generally have to pay a fee as well as start off with smaller annuity payments, giving your annuity balance extra time to grow. Generally speaking, the longer the time period, the lower the monthly payout. The time period you select determines the size of your payment. Or you can have payments guaranteed for the rest of your life. But how you would answer the following three questions determines how large those payments may be:įor how long would you need to receive payments? You can opt to schedule payments over a set period of time, like monthly payments for 20 years. SPIA payments generally start immediately when you purchase your annuity. Related: Find A Financial Advisor In 3 minutes SPIA Payments That means you’ll generally see lower growth of your investment with SPIAs than other types of annuities that build value for years or decades before your first withdrawal. “Many annuity products, like variable annuities or fixed annuities, are commonly used for accumulation purposes as they can earn interest,” said Adam Deady, a certified financial planner (CFP) with MassMutual. Deferred annuities, which provide a longer contribution window and significantly more time for investment growth, have become increasingly popular. While they are the oldest type of annuity, with a storied history reaching back to the Roman Empire, only about 10% of annuities purhased today are SPIAs. “A SPIA annuity provides regular payments over a period of time, typically lasting throughout the lifetime of the one receiving the payments, much like a pension or Social Security.” “SPIAs by definition are purchased at one time with one payment,” says Sri Reddy, senior vice president of Retirement and Income Solutions at Principal Financial Group. People generally fund SPIAs with a deposit from cash savings or a retirement plan, like your individual retirement account (IRA) or 401(k). The SPIA immediately begins paying you back your purchase price plus a modest interest rate in installments. What Is a Single Premium Immediate Annuity?Ī single premium immediate annuity is an annuity purchased with one large upfront payment. You purchase a SPIA with a single lump sum, instead of making incremental payments over time as with some other types of annuities. While SPIAs are easy to understand, buying them requires some foresight. With a SPIA, you make a single large deposit with an annuity company and your monthly payments begin immediately. A single premium immediate annuity (SPIA) is one of the simplest types of annuity contracts.
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