Immediate Annuity(SPIA)
An annuity purchased with a lump sum that begins paying income almost right away.
A single-premium immediate annuity (SPIA) converts a lump sum into income payments that typically start within a year. It is often used to cover essential expenses with a dependable paycheck for a set number of years or for life.
Once payments begin, the income stream is generally fixed by contract; the payments are backed by the claims-paying ability of the issuing insurance company and are not FDIC insured. Because the lump sum is exchanged for income, access to the original principal is usually limited.
Example
At 70, a retiree uses $150,000 to buy an immediate annuity that pays a fixed monthly amount for life, covering rent and utilities.
This definition is for general educational purposes only and is not financial, tax, or legal advice. Tim Hartle is an independent insurance professional. Annuity guarantees are subject to the claims-paying ability of the issuing insurance company and are not FDIC insured. Rules and product features vary by situation and by state. Please consult a qualified advisor about your own circumstances.
Related Terms
Annuity
A contract with an insurance company that can turn a lump sum into a stream of income, often for life.
Deferred Annuity
An annuity that grows during an accumulation phase before income payments begin later.
Annuitization
The process of converting an annuity's value into a stream of income payments, backed by the issuing insurance company and not FDIC insured.
Longevity Risk
The risk of outliving your savings because retirement lasts longer than planned.
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Annuities are insurance contracts. Guarantees, including guaranteed lifetime income benefits where available, are subject to the claims-paying ability of the issuing insurance company. Product features, fees, withdrawal restrictions, and surrender charges vary by contract.