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Filling in the income gap with a single premium immediate annuity

Retirement is a time to relax and enjoy life – especially after many years of hard work and saving. So, the last thing you should have to worry about during this time in your life is running out of income when you still need it. A single premium immediate annuity, or SPIA, can help you to do just that.

But before you purchase a single premium immediate annuity, it is recommended that you learn how they work so that you’ll know what you can (and can’t) anticipate going forward.

How Single Premium Immediate Annuities (SPIAs) Work

Just like other types of annuities, a single premium immediate annuity is a contract between you and an insurance company. In this case, in return for a lump sum contribution, the annuity will pay you a set amount of income over a predetermined time frame – such as 10 or 20 years – or even for the remainder of your lifetime, regardless of how long that might be.

There are many ways to “customize” a single premium immediate annuity to fit your specific needs. For instance, income payments can be received on a monthly, quarterly, semiannual, or even an annual basis.

You can typically also choose whether the income payment from the SPIA will be made to just one individual or two. In this case, for example, you could choose to continue the income from the annuity for the lifetime of two people, such as a husband and wife.

SPIAs and Taxes

It is possible that some – or possibly even all – of the income payments that you receive from a SPIA can be taxed. This will depend upon how the annuity was funded. As an example, if the contribution(s) you make into the SPIA have already been taxed, then only a portion of the income payment will be taxable (the part that is considered the gain), and the rest – the part that represents a return of your original contribution – will be tax-free.

However, if your contribution to a SPIA comes from a traditional IRA or employer-sponsored retirement plan – where the contributions were pre-tax, and the gains were tax-deferred – then 100% of the income payment from the SPIA will be taxable to you as ordinary income. This is because none of these funds that you receive have yet been taxed.

It is important to understand how your SPIA income payments will be taxed because it can impact the amount of money that you have available to spend on items and services you need to purchase in retirement.

Over the past century or so, the top federal income tax rates in the United States have fluctuated a great deal – with a low of just 7% and highs in the 90% range. With that in mind, depending on the future tax rates in the U.S., you may find that a portion of your SPIA income will go to Uncle Sam.

Top Federal Income Tax Rates 1913 – 2020

YearRateYearRate
2018-202037195084.36
2013-201739.61948-194982.13
2003-2012351946-194786.45
200238.61944-194594
200139.11942-194388
1993-200039.6194181
1991-199231194081.1
1988-1990281936-193979
198738.51932-193563
1982-1986501930-193125
198169.125192924
1971-1980701925-192825
197071.75192446
196977192343.5
196875.25192258
1965-1967701919-192173
196477191877
1954-196391191767
1952-195392191615
1951911913-19157

Source: Inside Gov (http://federal-tax-rates.insidegov.com/)

How to Purchase a Single Premium Immediate Annuity

While there are many advantages to owning a single premium immediate annuity, these financial vehicles are not right for everyone. So, if you’d like to learn more about how a SPIA may – or may not – be a good fit for your retirement income needs, it is recommended that you first talk with an annuity specialist.

Doing so can allow you to ask questions and gather additional information, and in turn, be able to anticipate how this type of annuity works. At Annuity Gator, we make learning about all kinds of annuities easy.

In fact, it is our mission to educate consumers and financial professionals regarding the ins and outs of “all things annuity.” So, if you’d like to reach out to us, please call directly at (888) 440-2468, or feel free to send us an email with any questions that you may have. We look forward to assisting you.

Filling in the Income Gap with a Single Premium Immediate Annuity

2 Comments
  • Daniel
    3:37 PM, 26 September 2020

    What is your percentage rate at the moment for a fixed annuity and the lowest time period you can be involved with it. Thank you for your time in this matter

    • Annuity Gator
      9:17 AM, 28 September 2020

      Hi Daniel – Thank you for your message.
      We would be happy to provide you more details on any annuity you might be considering and even comparing them to other similar annuities. In order to provide you with the best advice, we would need to get a bit more information from you. Rather than emailing sensitive details back and forth, though, it would be best to chat via phone. Please feel free to reach out to us directly, toll-free, at (888) 440-2468 to chat with one of our annuity specialists or visit https://annuitygator.com/contact/
      We look forward to speaking with you.
      Best,
      Annuity Gator

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