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A SPIA is a single premium immediate annuity issued by an insurance company, allowing a person to turn a lump sum of money into a regular payment that is guaranteed for a certain period. The payout phase of the SPIA could be as short as 5 years, or last as long as the rest of the annuitant's life and his spouse's life.
SPIAs have become more popular over recent years because of the decline of defined benefit plans (or pensions) in the workplace. Today, however, defined benefit plans are few and far between. Retirees seeking the stability of pension-like guarantees can lean on SPIAs, take some or all of their retirement savings and turn those savings into a private pension plan.
SPIA options are just about as numerous as the companies who offer them. The annuitant can choose a payment for the rest of her life and her spouse's life if she chooses. However, if
the annuitant wants a payout over a shorter period, a higher payout will be made available because the insurance company is taking less risk. The longer the guarantee, the less the insurance company will pay because the company is then taking more of the risk.
The best way to estimate what a SPIA payout might be is to use a SPIA calculator (see link in Resources). By entering your age, a lump sum deposit and annuity payout option, you can see what insurance companies may offer. Remember, insurance is a transfer of risk and annuities are insurance products. Therefore, the more risk you ask the insurance company to take, the less the payout will be.
Read and understand immediate annuity product specifics carefully before investing any money. Research the insurance company's independent, 3rd-party ratings. Remember also that when an insurance company advertises an interest rate on its immediate annuities, this is a combination of an interest rate and a return of principal.