What Is an Immediate Annuity?
An immediate annuity, also called a single premium immediate annuity (SPIA), converts a lump sum of money into an income stream that starts almost right away. Unlike a deferred annuity, there is no accumulation phase. You hand the carrier a premium, and in exchange, it begins sending you regular payments.
Who Uses Immediate Annuities?
Immediate annuities are primarily used by retirees who have a pool of savings — from a 401(k) rollover, pension lump sum, or other source — and want to convert it into a guaranteed paycheck they cannot outlive. Because the income is immediate, the product is most appropriate for those already in or very close to retirement.
Payout Options
Immediate annuity payments can be structured in several ways:
- Life only: Payments for the rest of your life. Highest payout but no residual benefit at death.
- Period certain: Payments guaranteed for a fixed term (e.g., 20 years), whether or not you are alive.
- Life with period certain: Lifetime income with a minimum guaranteed term as a safety net.
- Joint life: Continues payments for as long as either you or a spouse is alive.
The Tradeoff: Income for Liquidity
The main limitation of a SPIA is irrevocability. Once you exchange your lump sum for an income stream, you generally cannot get the principal back. There is no accumulation value to access for emergencies. This makes an immediate annuity appropriate as a complement to other liquid assets, not as a home for all retirement savings.