Immediate Annuity (SPIA)
A single-premium contract that converts a lump sum into a stream of income payments beginning almost immediately.
An immediate annuity, sometimes written as a single premium immediate annuity or SPIA, converts a lump sum into a stream of payments that begins within about a year of purchase - most often the next month. There is no accumulation phase. In exchange for the income, the owner generally gives up access to the principal, which is the defining trade of the product.
- —Income starts almost immediately; there is no accumulation period and usually no account value to withdraw.
- —Payout depends on the premium, the owner's age, the payout option, and interest rates at purchase.
- —Liquidity is the price of the income. Most SPIA contracts cannot be surrendered for a lump sum.
- —A period certain or refund option preserves something for beneficiaries at the cost of a lower payment.
An immediate annuity has no accumulation phase. A lump sum is exchanged for payments that begin within roughly a year, priced from prevailing interest rates, the payout period elected, and mortality assumptions.
It is the most liquidity-restrictive annuity structure and the most direct at solving one problem: covering a recurring expense with income that does not depend on market performance.
Immediate versus deferred, in one comparison
The two categories differ in when income starts and in how much control the owner keeps over the money in the meantime.
| Feature | Immediate (SPIA) | Deferred |
|---|---|---|
| Income start | Usually within 1-12 months | A future date chosen by the owner |
| Accumulation phase | None | Yes, value grows before payout |
| Access to principal | Generally none once payments begin | Limited by surrender schedule and free withdrawal |
| Primary use | Converting savings into income now | Growing money for income later |
The payout options that change everything
The payout election made at purchase is generally irrevocable, and it drives the size of every payment that follows. A life-only election produces the highest payment because nothing is promised after death. Each guarantee added to protect beneficiaries reduces the payment.
- —Life only - highest payment, nothing continues to beneficiaries
- —Life with period certain - payments continue to a beneficiary for the remainder of a stated term
- —Joint and survivor - continues, often at a reduced rate, for a second life
- —Cash or installment refund - guarantees that total payments reach at least the premium paid
What to establish before converting a lump sum
An immediate annuity is one of the few retirement decisions that is genuinely difficult to reverse. The questions worth answering first are factual rather than promotional.
- —How much liquid money remains outside the contract after the premium is paid
- —Whether the payout option leaves the intended protection for a spouse or beneficiary
- —Whether the funds are qualified or non-qualified, which changes how each payment is taxed
- —The financial strength rating of the issuing carrier, since payments depend on it for decades
Frequently asked questions
- What is the difference between an immediate annuity and a deferred annuity?
- An immediate annuity starts paying income within about a year of purchase and has no accumulation phase. A deferred annuity accumulates value first and begins income at a later date chosen by the owner.
- Can I get my money back from an immediate annuity?
- Generally no. Most immediate annuities have no cash surrender value once payments begin. A refund or period certain option can guarantee that a beneficiary receives the balance of the premium, but the owner cannot usually reclaim the lump sum.
- How is immediate annuity income taxed?
- For a non-qualified contract, an exclusion ratio treats part of each payment as a tax-free return of premium and part as taxable interest. Payments from a qualified contract are generally fully taxable as ordinary income.
- What happens to an immediate annuity when the owner dies?
- It depends entirely on the payout option elected at purchase. Life only ends at death. A period certain, joint and survivor, or refund option continues value to a survivor or beneficiary under the terms elected.