- A SPIA converts a lump sum into guaranteed monthly income starting within 30 days — the fastest path from savings to retirement paycheck.
- Payout options include life only (highest payment), life with period certain, joint life, and period certain only — each balancing income size against survivor protection.
- SPIA rates are driven by your age, gender, interest rates, and the payout option you choose. Older buyers and higher interest rates produce larger monthly payments.
- Non-qualified SPIA payments are partially tax-free (return of premium) using the IRS exclusion ratio. Qualified SPIA payments are fully taxable.
- SPIAs are generally irrevocable — once you begin receiving income, you cannot access the lump sum. Only annuitize money you will not need for other purposes.
What Is a SPIA?
A SPIA — Single Premium Immediate Annuity — is an insurance contract designed to do one thing: convert a lump-sum deposit into guaranteed periodic income that begins almost immediately. You write a check to an insurance company, choose how long you want to receive payments (a set period, your lifetime, or your and your spouse’s joint lifetimes), and income starts arriving within 30 days.
SPIAs are the purest form of guaranteed lifetime income available in the financial marketplace. Unlike deferred annuities that accumulate value over time, a SPIA has no accumulation phase — every dollar goes directly toward funding your income stream. The insurance company pools your premium with thousands of other policyholders, invests the combined pool, and uses actuarial science to guarantee payments regardless of how long any individual lives.
This is the same principle that underpins traditional pensions. In fact, many financial professionals describe a SPIA as a “personal pension” — because it creates the same kind of predictable, guaranteed monthly income that defined-benefit pensions once provided. With fewer than 15% of private-sector workers still covered by a pension, SPIAs have become the primary tool for retirees who want to replace that lost income certainty.
All SPIA guarantees are backed solely by the financial strength and claims-paying ability of the issuing insurance company. SPIAs are not FDIC-insured, not bank products, and not securities. They are regulated at the state level by state insurance departments.
How SPIAs Work
The mechanics of a SPIA are remarkably straightforward compared to other annuity types. There is no accumulation phase, no investment subaccounts, no crediting strategies, and no annual statements showing an account balance. Once you purchase a SPIA, the insurance company owes you a fixed stream of payments — period.
Step 1: Deposit Your Premium
You make a single lump-sum payment to the insurance company. This can come from savings, a maturing CD, an existing annuity (via 1035 exchange), an IRA rollover, a 401(k) distribution, or any other source of funds. Most carriers require a minimum of $25,000 to $100,000, though some accept lower amounts.
Step 2: Choose Your Payout Option
You select how you want to receive income. The four primary options — life only, life with period certain, joint life, and period certain only — are detailed in the next section. This choice is typically irrevocable once payments begin, which is why it demands careful consideration.
Step 3: Income Begins
Payments start within 30 days of your deposit (some contracts allow you to defer the first payment by up to 12 months while still being classified as “immediate”). Most buyers choose monthly payments, though quarterly, semiannual, and annual options are available. Your payment amount is fixed at purchase — it will not change for the life of the contract unless you purchased an inflation-adjustment rider.
Step 4: The Insurance Company Manages the Risk
Behind the scenes, the insurer pools your premium with those of thousands of other annuitants. Some policyholders will live longer than their actuarial life expectancy; others will not. This pooling of longevity risk is what allows the insurance company to guarantee payments that no individual could safely replicate on their own. A retiree withdrawing from a portfolio must plan for the possibility of living to 95 or 100 — requiring a very conservative withdrawal rate. An insurer, by pooling thousands of lives, can pay each individual more because the math of large numbers smooths out the uncertainty.
Key SPIA Features
No fees deducted from payments. Unlike variable annuities, SPIAs do not charge annual management fees, mortality and expense charges, or administrative fees. The insurer’s profit margin is built into the payout rate itself — meaning the rate you are quoted already accounts for the company’s costs and profit. What you see is what you get.
Payments are contractually guaranteed. Your payment amount is locked in at the time of purchase. It does not fluctuate with interest rates, stock markets, or economic conditions. The insurance company is legally obligated to make every payment for the duration specified in your contract.
Generally irrevocable. Once you annuitize, you typically cannot cancel the contract and retrieve your lump sum. Some modern contracts offer a “commutation” or “withdrawal” feature that allows limited access to remaining value, but this is not standard and reduces your monthly payment. This irrevocability is the trade-off for the guarantee.
Death benefit depends on payout option. With a life-only payout, payments stop at death. With period certain or cash refund options, remaining value passes to your designated beneficiary. Choosing the right payout option is the single most important decision you make when purchasing a SPIA.
SPIA Payout Options
The payout option you select determines three things: how much you receive each month, how long payments last, and what (if anything) is paid to your heirs after you die. Here are the four primary options:
Life Only (Single Life Annuity)
Payments continue for as long as you live — whether that is 5 years or 35 years. When you die, payments stop completely and nothing is paid to beneficiaries. Because the insurer takes on the maximum longevity risk and has no obligation to heirs, this option provides the highest possible monthly payment of any payout structure.
Best for: Healthy individuals without dependents, or those whose spouse has sufficient independent income and assets. Also appropriate when maximizing monthly cash flow is the top priority and legacy concerns are addressed through other assets (life insurance, investments, real estate).
Life with Period Certain (10, 15, or 20 Years)
Payments continue for your lifetime, but with a guaranteed minimum period. If you die before the period certain ends, your beneficiary receives the remaining payments until the guaranteed period is fulfilled. For example, a “life with 20-year certain” SPIA guarantees at least 20 years of payments. If you die in year 8, your beneficiary receives payments for the remaining 12 years.
Trade-off: Monthly payments are lower than life-only because the insurer guarantees a minimum payout period. The longer the certain period, the lower the monthly payment.
Best for: People who want lifetime income but also want to ensure their heirs receive some value if they die earlier than expected. The 10-year certain period is the most popular choice, offering a balance between payment size and survivor protection.
Joint Life Annuity (Joint and Survivor)
Payments continue as long as either you or your designated survivor (typically your spouse) is alive. When the first person dies, payments continue to the survivor. Some contracts pay the survivor the full original amount (“100% joint and survivor”); others reduce the payment to the survivor by one-third or one-half (“67%” or “50% joint and survivor”).
Trade-off: Joint life produces the lowest initial monthly payment because the insurer is covering two lifetimes of risk. A 100% joint and survivor payout will be lower than a 50% joint and survivor payout, since the insurer commits to paying the full amount to whichever spouse lives longer.
Best for: Married couples who depend on the annuity income for essential living expenses. The surviving spouse’s income needs should drive the percentage choice — if the survivor’s expenses drop significantly (e.g., mortgage is paid off), a 50% or 67% survivor option may suffice.
Period Certain Only
Payments are made for a fixed number of years — typically 5, 10, 15, or 20 — regardless of whether you are alive or not. If you die during the certain period, your beneficiary receives the remaining payments. If you outlive the period, payments stop entirely.
Trade-off: This option does not provide lifetime income. Once the period ends, payments cease. However, it guarantees that the full value of payments will be made to you or your heirs.
Best for: People who need guaranteed income for a specific time window — such as bridging the gap between early retirement and Social Security at age 70 — rather than for life.
Payout Comparison: $200,000 Deposit, Age 65 Male
The following table illustrates approximate monthly payments for a $200,000 SPIA purchased by a 65-year-old male under current rate conditions. These are illustrative examples only — actual rates vary by carrier, state, and prevailing interest rates at the time of purchase.
| Payout Option | Monthly Payment | Annual Income | Beneficiary Protection |
|---|---|---|---|
| Life Only | $1,290–$1,350 | $15,480–$16,200 | None — payments stop at death |
| Life + 10-Year Certain | $1,220–$1,280 | $14,640–$15,360 | Remaining payments (up to 10 yrs) go to beneficiary |
| Life + 20-Year Certain | $1,120–$1,180 | $13,440–$14,160 | Remaining payments (up to 20 yrs) go to beneficiary |
| Joint Life 100% (spouse age 63) | $1,060–$1,120 | $12,720–$13,440 | Full payment continues to surviving spouse |
| Joint Life 50% (spouse age 63) | $1,150–$1,210 | $13,800–$14,520 | 50% of payment continues to surviving spouse |
| 20-Year Period Certain Only | $1,050–$1,100 | $12,600–$13,200 | Remaining payments go to beneficiary; stops after 20 years |
Current SPIA Rates
SPIA “rates” are expressed differently than rates for accumulation products like MYGAs or CDs. Rather than an annual percentage yield, a SPIA rate is typically quoted as a monthly (or annual) payment per dollar deposited — or simply as the dollar amount of income a given deposit will produce. The underlying economic rate built into a SPIA payout is sometimes called the “payout rate” or “internal rate of return,” but it varies depending on how long you live.
What Drives SPIA Rates?
Your age at purchase. Older buyers receive higher monthly payments. The insurance company expects to make payments for fewer years, so each payment can be larger. A 70-year-old will receive a materially higher monthly payment than a 60-year-old for the same deposit.
Prevailing interest rates. When interest rates are high (as they are in 2025–2026), insurance companies can invest your premium at higher yields, which translates directly into higher payouts for you. Today’s SPIA payouts are among the most favorable in over a decade.
Payout option selected. As shown above, a life-only payout produces the highest payment. Adding period certain guarantees, joint-life coverage, or inflation adjustments all reduce the monthly amount.
Gender. Because women statistically live longer than men, a female buyer of the same age receives a slightly lower monthly payment than a male buyer — the insurer expects to make payments over a longer period.
Deposit amount. Larger deposits generally produce proportionally similar per-dollar payouts, though some carriers offer slightly better rates for larger premiums.
Approximate Monthly Income per $100,000 Deposit (Life Only)
The table below shows illustrative life-only monthly payment ranges for a $100,000 SPIA at various ages. These figures are approximate and based on competitive carrier quotes in the current rate environment.
| Age at Purchase | Male (Monthly) | Female (Monthly) | Effective Payout Rate |
|---|---|---|---|
| 60 | $530–$570 | $505–$545 | 6.4–6.8% |
| 65 | $590–$640 | $560–$610 | 7.1–7.7% |
| 70 | $670–$730 | $635–$695 | 8.0–8.8% |
| 75 | $785–$855 | $740–$810 | 9.4–10.3% |
| 80 | $945–$1,035 | $885–$970 | 11.3–12.4% |
How SPIAs Are Taxed
Non-Qualified SPIAs (Purchased with After-Tax Money)
When you buy a SPIA with money you have already paid taxes on (savings, brokerage account, maturing CD), each payment is split into two parts using the IRS exclusion ratio:
Non-taxable portion (return of premium): This is the fraction of each payment that represents a return of your original deposit. Since you already paid taxes on this money, it comes back to you tax-free.
Taxable portion (earnings): This is the fraction of each payment that represents interest earned by the insurance company on your deposit. This portion is taxed as ordinary income.
The exclusion ratio is calculated at the start of the contract and remains fixed for the expected payout period. For a life-only SPIA purchased at age 65, approximately 65–75% of each payment may be excluded from taxes during the expected payout period. After you have received payments equal to your total premium (typically 12–18 years into the contract), subsequent payments become fully taxable.
Qualified SPIAs (Funded from IRA, 401(k), or Other Retirement Account)
If you purchase a SPIA with pre-tax retirement money — an IRA rollover, 401(k) distribution, or other qualified funds — the entire payment is taxable as ordinary income. There is no exclusion ratio because the original deposit was never taxed. This follows the same rules as any IRA or 401(k) withdrawal.
Before Age 59½
Withdrawals from annuities before age 59½ may trigger a 10% IRS early withdrawal penalty on the taxable earnings portion, in addition to regular income tax. However, SPIA payments structured as “substantially equal periodic payments” (SEPP/72t) may qualify for an exception to this penalty. Consult a tax advisor before purchasing a SPIA if you are under 59½.
Tax Advantage Over Portfolio Withdrawals
The exclusion ratio gives non-qualified SPIAs a meaningful tax advantage over systematic withdrawals from a taxable investment account. With portfolio withdrawals, all dividends, interest, and capital gains are fully taxable in the year they are realized. With a SPIA, a significant portion of each payment is tax-free for many years. This can result in lower annual tax bills and potentially keep you in a lower tax bracket during early retirement.
SPIAs vs. Deferred Income Annuities (DIAs)
SPIAs and DIAs are both “income annuities” — they convert a lump sum into guaranteed periodic payments. The critical difference is when those payments begin. Understanding this distinction helps you decide which product fits your retirement timeline.
| Feature | SPIA | DIA (Deferred Income Annuity) |
|---|---|---|
| Income Start | Within 30 days | 2–30 years after purchase |
| Typical Buyer Age | 60–80 | 50–65 |
| Monthly Payment (per $100K, age 65) | $590–$640 (life only) | Higher — depends on deferral length |
| Payment Size vs. SPIA | Baseline | 30–60%+ higher for 10–15 year deferral |
| Flexibility Before Income | None — payments start immediately | Some contracts allow cancellation before income starts |
| Best Use Case | Need income now at or near retirement | Lock in future income at lowest cost today |
| Inflation Concern | Payments fixed (unless rider added) | Longer deferral magnifies inflation risk |
| Death Before Income Starts | N/A — income already started | Premium may be returned or lost (varies by contract) |
When to choose a SPIA: You are already retired or within 12 months of retirement and need income now. You want the simplest possible path from savings to paycheck.
When to choose a DIA: You are 5–15 years from retirement and want to lock in future income at today’s favorable rates. You are willing to wait for higher payments. DIAs purchased at age 55 with income starting at age 70 can produce substantially more monthly income per dollar deposited than a SPIA purchased at age 70.
SPIAs vs. Other Retirement Income Sources
A SPIA is one of several strategies for generating retirement income. Here is how it compares to the most common alternatives:
| Feature | SPIA | Systematic Portfolio Withdrawals | Dividend Income | Delaying Social Security |
|---|---|---|---|---|
| Income Guarantee | Yes — contractually guaranteed for life | No — depends on market performance | No — dividends can be cut or suspended | Yes — government-backed |
| Longevity Protection | Complete — payments never stop | Partial — risk of running out | None — principal can decline | Complete — payments for life |
| Access to Principal | No — generally irrevocable | Yes — full liquidity | Yes — can sell holdings | N/A |
| Tax Efficiency | Partial exclusion (non-qualified) | Capital gains + dividends taxed | Qualified dividends taxed at lower rate | Up to 85% taxable |
| Inflation Adjustment | Fixed (unless rider added) | Portfolio growth may outpace inflation | Dividend growth may keep pace | Annual COLA adjustments |
| Complexity | Very simple | Requires ongoing portfolio management | Requires stock selection and monitoring | Simple — just delay filing |
| Risk of Ruin | Zero | Moderate to High | Moderate | Zero |
The combination approach: Most financial planners recommend using a SPIA to cover essential fixed expenses (housing, food, utilities, insurance) while keeping the rest of your portfolio invested for growth, discretionary spending, and emergencies. Social Security covers a base layer, and a SPIA fills the gap between Social Security and your essential expenses. This approach eliminates the risk of ruin on must-have expenses while preserving flexibility for everything else.
SPIA Pros and Cons
SPIAs offer unique benefits that no other financial product can replicate — but they also come with meaningful trade-offs. An honest assessment of both sides is essential before committing a portion of your retirement savings.
- Guaranteed income for life — the only product that contractually eliminates the risk of outliving your savings
- Simplicity — no investment decisions, no rebalancing, no monitoring. A check arrives every month.
- No annual fees — insurer’s margin is built into the payout rate. No management, administrative, or M&E charges deducted from payments.
- Favorable tax treatment — non-qualified SPIA payments are partially tax-free via the exclusion ratio
- Higher payouts than safe withdrawal rates — longevity risk pooling allows the insurer to pay more per month than you could safely withdraw from a portfolio
- Eliminates behavioral risk — removes the temptation to overspend or panic-sell during market downturns
- Pension replacement — creates predictable monthly cash flow similar to a traditional defined-benefit pension
- Current rate environment is favorable — elevated interest rates in 2025–2026 produce some of the best SPIA payouts in over a decade
- Generally irrevocable — once annuitized, you cannot access the lump sum for emergencies or large expenses
- Inflation risk — fixed payments lose purchasing power over time unless an inflation rider is purchased (which reduces the initial payment)
- No legacy value with life-only option — if you choose life only and die early, heirs receive nothing
- Opportunity cost — money placed in a SPIA cannot participate in market gains or higher future interest rates
- Not FDIC-insured — backed solely by the issuing insurer’s financial strength and claims-paying ability
- Payments taxed as ordinary income — not at the lower long-term capital gains rate
- Large lump sum required — generating meaningful monthly income requires a substantial deposit ($100K+ for most retirees)
- Before age 59½ — taxable earnings portion may be subject to a 10% IRS early withdrawal penalty
Who Should Buy a SPIA?
SPIAs are the right solution for a specific set of circumstances. If one or more of the following describes your situation, a SPIA deserves serious consideration:
You are at or near retirement and need income now. If you are retired or retiring within the next 12 months and need to convert savings into a reliable monthly paycheck, a SPIA is the most direct path from lump sum to income. There is no waiting period, no market dependency, and no withdrawal strategy to manage.
You want to replace a pension. If your employer did not offer a pension — or if your pension is smaller than your essential expenses — a SPIA fills the gap. Combined with Social Security, a SPIA can cover your non-negotiable monthly bills with guaranteed income, freeing your remaining assets for growth and discretionary spending.
You are worried about outliving your savings. If longevity runs in your family, if you are in good health, or if the thought of running out of money keeps you up at night, a SPIA directly addresses this fear. No matter how long you live, the payments continue. This is the core value proposition of an immediate annuity.
You want to simplify your finances in retirement. Managing a portfolio of stocks, bonds, and other investments requires ongoing attention, decision-making, and discipline. A SPIA requires none of this. Once purchased, it runs on autopilot. For retirees who want to spend less time managing money and more time enjoying retirement, this simplicity has real value.
You are concerned about behavioral risk. Research consistently shows that retirees who self-manage withdrawals tend to either spend too conservatively (depriving themselves of enjoyment) or too aggressively (risking depletion). A SPIA removes the behavioral element entirely — you receive the same payment every month regardless of market conditions or emotional impulses.
Your Social Security benefit is smaller than your essential expenses. If Social Security covers only 40–60% of your monthly needs, a SPIA can bridge the gap with guaranteed income. The combination of Social Security plus a SPIA creates a “floor” of guaranteed cash flow that cannot be disrupted by markets, recessions, or poor investment decisions.
Who Should NOT Buy a SPIA?
Being honest about who SPIAs are not right for is just as important as explaining who they are for. You should probably look elsewhere if:
You are under 59½ and not retiring. The 10% IRS early withdrawal penalty on the taxable earnings portion of SPIA payments makes this product unattractive for younger buyers who are not retiring. Additionally, locking up funds at a younger age means a longer period during which inflation erodes the purchasing power of fixed payments. If retirement is 10+ years away, a deferred income annuity (DIA) or MYGA may be more appropriate.
You need access to your principal. A SPIA is generally irrevocable. If there is any reasonable chance you will need a large lump sum for medical expenses, home repairs, family assistance, or other emergencies, do not place that money in a SPIA. Financial advisors typically recommend keeping at least 12–24 months of living expenses in liquid savings, plus a separate emergency fund, before purchasing any annuity.
Your total savings are modest. If your total retirement savings are under $150,000–$200,000, placing a large portion in a SPIA could leave you dangerously illiquid. A SPIA should be funded with money you can genuinely afford to set aside permanently. For smaller portfolios, a combination of Social Security optimization and careful withdrawal planning may be more practical.
You prioritize leaving a legacy. If maximizing the inheritance you leave to children or charities is a primary goal, a life-only SPIA works against that objective. While period certain and cash refund options provide some beneficiary protection, they reduce your monthly income. Other vehicles — life insurance, trusts, investment accounts — are generally more efficient for legacy planning.
You believe rates will rise significantly. SPIA payouts are locked at the time of purchase. If you are confident that interest rates will increase materially in the near future, you may prefer to wait and purchase at higher rates. However, timing the interest rate market is notoriously difficult. A common middle-ground strategy is to “ladder” SPIA purchases over 2–3 years, buying a portion now and a portion later.
You are in poor health. If your life expectancy is significantly shortened due to health conditions, a standard SPIA may not be the best value. However, some carriers offer “medically underwritten” or “substandard health” immediate annuities that pay higher rates to individuals with reduced life expectancy. Ask your advisor about these options.