Annuity Income: What a SPIA Pays You

A single premium immediate annuity, or SPIA, is the simplest kind of annuity: you hand an insurer a lump sum and, in exchange, it pays you a guaranteed income stream, usually monthly, starting almost immediately and often for life. It is essentially the opposite of life insurance - insurance against living too long rather than dying too soon.

How the payout is calculated

The insurer prices your income using your age, sex, the payout option you choose, and prevailing interest rates. A 65-year-old might receive roughly 5 to 7 percent of the premium each year for life, though the exact figure moves with interest rates and age.

Annual payout ≈ premium × payout rate(age, rates, option)

Payout options

• Life only. Highest income, but payments stop at death - nothing to heirs.
• Life with period certain. Guarantees payments for at least a set number of years.
• Joint and survivor. Continues for a spouse's lifetime, at a lower rate.
• Cash refund. Heirs receive any premium not yet paid out.

The trade-offs

• Irreversible. Once purchased, you generally cannot get your lump sum back.
• No inflation adjustment. A fixed payment loses buying power over decades.
• Insurer credit risk. Your guarantee is only as strong as the insurer backing it - state guaranty associations provide limited protection.

When a SPIA makes sense

It is most useful for covering essential, recurring expenses in retirement - housing, utilities, basic living costs - freeing other assets to stay invested for growth and legacy. Some retirees use a "bridge" SPIA to cover the gap between retiring and claiming Social Security.

Frequently asked questions

Is a SPIA taxable? Payments are partly a return of your own principal (tax-free) and partly interest (taxable as ordinary income); the split is set at purchase.

Can I buy one with IRA money? Yes, and the whole payment is then taxable as income.

Estimate your income with the calculator below.