Tags: Retirement | annuity | pros | cons | single payment

Pros and Cons of a Single Payment Immediate Annuity

By    |   Monday, 04 May 2015 09:48 AM

A single premium immediate annuity, or SPIA, offers an easier and more secure way to have income during retirement. You make a single payment as a premium for a return of payments for the rest of your life or the life of the annuity.

SPIAs are handled by insurance companies, which then make payments to you over a specific period of time. Annuity plans may range from five to 30 years. The annuitant receives payments every month, quarterly, semi-annually or annually, according to Annuity Rate Watch.

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Fixed annuities provide a steady flow of income for retirees, who know how much to expect for each payment, according to the Oblivious Investor. There are SPIAs that include upward adjustments for payouts to account for inflation. These plans have a higher initial premium.

You have a "guaranteed" income for your retirement or the life of the annuity as opposed to investing in other retirement plans, which may gain or lose because of the market. These investment plans depend on the performance of stocks, bonds or mutual funds.

On the negative side, the money in the annuity is no longer there when the annuitant dies. There is nothing to pass on to heirs. The annuity works similar to insurance for the annuitant. The insurance companies collect premiums from clients and use the money that would have paid the deceased member to fund the payments for other members who surpass their life expectancy.

This negative side of SPIAs is offset by the possibility that you could spend all or most of the money you have in an investment plan during retirement. You could live longer than expected or experience uncertainties in the financial market. With the SPIA, you know you have that steady income during your payment periods.

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Another drawback for an annuity is the possibility that the insurance company will go out of business. A company might seem profitable now, but you don't know what could happen 10 or 30 years from now. Checking into the strength of a potential insurer through rating agencies, such as Moody's or A.M. Best, can help in choosing a stable company.

People who buy single payment annuities are stuck with them for the life of the annuity, notes Rick Ferri in an article for Forbes. They usually can't get their money back because it is often a difficult procedure.

Some people may realize they need more money than they are getting from their payouts when emergencies occur. If they put most or all of their savings into the annuity, they could become financially strapped.

Depending on a person's financial situation, a single premium immediate annuity may be a good move for people who use a portion of their savings for it. They might invest in another retirement plan as well.

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A single premium immediate annuity, or SPIA, offers an easier and more secure way to have income during retirement. You make a single payment as a premium for a return of payments for the rest of your life or the life of the annuity.
annuity, pros, cons, single payment
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2015-48-04
Monday, 04 May 2015 09:48 AM
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