Annuity type · Sioux Falls & South Dakota
Immediate Income Annuity (SPIA)
A single premium immediate annuity, or SPIA, converts a lump sum into a stream of payments that usually begins within about a year. People often consider one when they want predictable income they cannot outlive, and are willing to give up access to the lump sum in exchange.
Who it may suit
- Retirees who want predictable income to cover essential monthly expenses
- People who want income that continues for life, no matter how long they live
- Those who want to supplement Social Security with another guaranteed payment
How it generally works
You pay a single premium to an insurance company. In exchange, the insurer agrees to pay you a set amount on a regular schedule, most often monthly, beginning almost immediately.
You choose a payout option at purchase, and it generally cannot be changed afterward. A life-only option pays for as long as you live and stops at death. A period-certain option pays for a set number of years. A life with period-certain option pays for life but guarantees payments for a minimum number of years. A joint and survivor option continues payments to a surviving spouse.
The payment amount depends on your age, your gender where permitted by state law, the payout option chosen, the premium amount, and interest rates when you buy. Once payments begin, the amount is set unless you selected an increasing option.
Potential advantages
- Predictable income that can be guaranteed for life
- Removes the risk of outliving this portion of your savings
- No ongoing investment decisions to manage
- Joint options can continue income to a surviving spouse
Important limitations
- The decision is generally irrevocable, and you give up access to the lump sum
- A life-only option may pay out less than the premium if you die early
- Fixed payments lose purchasing power to inflation over time
- Payment amounts are sensitive to interest rates at the time of purchase
Access to your money
This is the central tradeoff. In exchange for guaranteed income, you generally give up access to the premium. Most immediate annuities have little or no cash surrender value once payments begin. Some contracts offer limited commutation or a cash refund feature, but these are not universal and they typically reduce the payment amount. Only use money you will not need as a lump sum.
What may affect your rate or income
- Your age at purchase, and the age of a joint annuitant
- The payout option selected, including any period certain
- The premium amount
- Prevailing interest rates when the contract is issued
- Whether you elect a level or increasing payment
Optional rider categories
- Cash refund or installment refund feature
- Cost-of-living or annual increase option
- Joint and survivor continuation
Rider availability, definitions, and cost vary by contract and carrier, and riders often carry a charge.
How it is generally taxed
With a non-qualified immediate annuity, each payment is generally part return of your premium and part taxable interest, divided using an exclusion ratio. With a qualified contract funded by pre-tax dollars, payments are generally fully taxable as ordinary income. Tax treatment depends on your situation, so please confirm details with a tax professional.
How it compares
Immediate Income Annuity (SPIA): frequently asked questions
Can I change my mind after payments start?
Generally no. Immediate annuities are designed to be irrevocable, which is why you should only use money you will not need as a lump sum. Some contracts offer limited commutation, but you should confirm before purchase rather than assume it.
What happens if I die soon after buying one?
It depends entirely on the payout option. A life-only option stops at death, which can mean receiving far less than the premium. A period-certain, cash refund, or joint option is designed to address that risk, usually in exchange for a lower payment.
How is a SPIA different from a deferred annuity?
A SPIA begins paying income almost immediately and is built around the payout. A deferred annuity accumulates value first, and income is an option you may exercise later.
About this information
This page is general education reviewed by Big Sioux Life. It is not a substitute for the contract, the disclosure statement, or professional advice. Rates, caps, and participation rates change and vary by carrier and state, so we do not publish them here. For authoritative details, consult your state department of insurance and the specific carrier's contract documents. See our editorial policy.
This page is educational and is not insurance, financial, tax, or legal advice. Annuities are insurance contracts, not bank deposits. They are not FDIC insured and not bank guaranteed. Product availability, features, rates, caps, and provisions vary by carrier and state and are subject to change. Any guarantees are backed solely by the claims-paying ability of the issuing insurer. Withdrawals may be subject to surrender charges and a market value adjustment, and withdrawals taken before age 59 and a half may be subject to an additional 10% federal tax. No contract exists until it is issued and in force. Immediate annuity payments are generally irrevocable once elected, and most contracts have little or no cash surrender value after payments begin.