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Single Premium Immediate Annuity

A single premium immediate annuity is a contract funded with a single lump-sum payment (premium) in exchange for guaranteed income payments. Designed to supplement retirement income, a SPIA insures the purchaser against outliving their money or exhausting it within a certain timeframe. A SPIA can begin paying income immediately, bypassing the accumulation phase and going directly to the annuitization phase.

The Market

SPIAs make up just a fraction of all annual annuity sales—just $6B of $254.8B in 20211—but as bond rates continue to decrease, clients who’ve traditionally sought reliable income through bond strategies may need to explore new options to secure similar or higher rates.


DPL's View

These measures are created within the context of insurance products.SPIA Risk Meters


How SPIAs Work

Like certificates of deposit2 (CDs) or money market funds, SPIAs provide a consistent stream of income over a specific period or for the life of the annuitant depending on the payout options available, and may often be used by risk averse clients nearing or in retirement. Where SPIAs differ is they can be highly customized to provide income payments monthly, quarterly, or annually for the annuitant's life or a defined period. SPIA payout rates are determined by the insurance company and are based upon the life expectancy and gender of the annuitant at time of purchase. Once payments begin, they will continue at a fixed rate until the end of the payout period or annuitant's life. 

Because clients are living much longer in retirement, some SPIAs offer increasing payout options to protect purchasing power typically lost to inflation. Choosing this option can increase annual payouts by a compounded interest rate of 1%-5% but will reduce initial income payments. Some SPIAs also offer commutation benefits, which provide access to the present cash value of the future payouts in the form of a lump-sum payment. This can help clients address emergency situations if other sources are not available, but will result in a reduction of future payouts. 


Problems with Commissioned SPIAs

  • In a commissioned SPIA sale, the compensation paid to the agent results in a reduction of the income payout rate.  

  • In a commission-free SPIA, there is no built-in agent compensation to recover, resulting in higher income payments for the life of the contract.


How to Think About Commission-Free SPIAs

When your client needs: 

GUARANTEED LIFETIME INCOME:  SPIAs are explicitly designed to manage longevity risk by generating an income stream that clients cannot outlive. 

FIXED INCOME:  With interest rates at historic lows, SPIAs have the potential to provide a higher rate of consistent income payments than a fixed income strategy. 

PRINCIPAL PROTECTION:  For clients at or near retirement, sequence of returns risk can significantly impact their income levels throughout retirement. A SPIA mitigates this risk by annuitizing the assets and removing them from the market. 

1LIMRA Secure Retirement Institute
2Annuities are not FDIC insured and are not deposits in, obligations of, or guaranteed by any bank or other financial institution.

All guarantees are based on the financial strength and claims paying ability of the issuing insurance company.

The purchase of an annuity within a retirement plan that already provides tax deferral under sections of the Internal Revenue Code results in no additional tax benefits. An annuity should be used to fund a qualified plan based upon the annuity’s features other than tax deferral. All annuity features, risks, limitations, and costs should be considered prior to recommending the purchase of an annuity within a tax-qualified retirement plan. In addition to surrender charges, withdrawals are subject to income tax.

Withdrawals prior to age 59 1/2 may also be subject to a 10% federal tax penalty.

Have more questions about the Single Premium Immediate Annuity?

Call us at 888.327.0049 to speak to a DPL Consultant.


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under California License #0M42434.

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