Your retirement is one of the most impactful transitions in life, both financially and personally. During your retirement years, it is critical that your needs continue to be met the same as when you were receiving work generated income. For many, part of achieving that balance is relying on annuities and investments.
A single premium immediate annuity can be a great choice depending on your circumstances; here’s what you need to know to make the best choice.
What Is a Single Premium Immediate Annuity?
A single premium immediate annuity (SPIA) is one method of ensuring the stability of your income during retirement. The “single premium” part of the name indicates that this annuity is funded with a single lump sum payment. Unlike other retirement vehicles, you cannot continue to pay into it over months or years; instead, you must put all of the money into the SPIA at once.
The “immediate” element of a SPIA means that you will begin receiving money very quickly after you fund the product. Some options allow for up to a year delay between funding and the beginning of your disbursements, but many SPIAs will start to pay out right away. At the latest, SPIAs will typically pay out no more than 12 months from their funding date.
As with other types of annuities, a SPIA will continue to provide consistent payments for the length of the term that you agreed to. This could be a predetermined number of years, or it could span the rest of your life. People often appreciate SPIAs because they are confident that they will not outlive their money, allowing them to budget based on a predictable income stream that is not impacted by market fluctuations.
Who Might Benefit from a SPIA
The situations of some retirees are more suited to the use of a single premium immediate annuity than others. You may benefit from a SPIA if you are:
- Funding retirement without a pension – Pensions are gradually becoming less common, which means that people have a need for a pre-defined monthly payment and the certainty that it brings. A SPIA can be a worthwhile replacement to consider.
- Worried that you will outlive your income – SPIAs can be set up so that instead of lasting for a defined number of years, they last the rest of your life. This comes as a big relief to many retirees, allowing them to confidently know that their income will last as long as they do.
- Generally afraid of market fluctuations – While it is true that the stock market could significantly boost your savings in a bull run, you could also lose a significant amount of money if the market turns bearish. People who don’t want to subject their entire income to market fluctuations often appreciate SPIAs, because these retirement vehicles do not track the market. If the market starts to fall, your SPIA will still be secure.
Before Committing to a SPIA
Single premium immediate annuities do have some specific aspects for consideration, too. Points to consider before opening a SPIA include:
- If you retire late – SPIAs can last for the rest of your life, but if you will retire late in life and are afraid that you will not receive back your full premium, you should consider riders that guarantee a residual payout to your heirs.
- If liquidity is important to you – One of the reasons that SPIAs work is because you commit a set amount of money for the long term. If you need access to cash quickly, know that you typically are not able to get the money back from your SPIA without paying significant fees. This may also require a significant amount of time. Your SPIA should be a commitment for the long term. Keep liquid assets separate.
Is a SPIA Right for You?
Understanding whether a SPIA is right for you depends upon your personal financial situation. A reputable insurance agency can help you to further examine single premium immediate annuities and other retirement funding products to make the best choice for your circumstances.
Prepare for Retirement With Quality Annuities
Whether you are starting out in the workforce and planning ahead, or you are ready for retirement, researching your options is always the right choice. Pillar Life Insurance would be happy to equip you with the tools you need to purchase the right annuity product that will help you feel more secure in your retirement. Our self service system keeps you in control of your financial future without the need for phone calls or meetings with insurance agents. Visit our website to get started.