Immediate Annuities

An immediate annuity is technically called a “Single Premium Immediate Annuity” (SPIA) and purchased from an insurance company. You exchange a non-refundable lump sum premium in return for a guaranteed stream of income over the rest of your life. Payments, generally begin 1 month after your purchase, and you can decide whether to take them monthly, quarterly, or annually. You can fund your annuity with either non-qualified (taxable) assets or qualified assets like IRAs, 401(k)s, etc.

Insurance companies offer several payout options. Here are monthly income quotes for a 65-year old female with a $100,000 premium as of mid 2024. Joint quotes assume a 65-year old male.

Single Life Only	You receive income for your lifetime only. No further payments.	$620
Single Life with 10-Years / 20-Years Certain	You receive income for your lifetime. If you die within the first 10 /20 years, your beneficiaries continue to receive income for the remainder of the 10 /20 years.	$611 / $582
Single Life with Cash Refund	You receive income for your lifetime. If you die prior to receiving an amount equal to your premium, your beneficiaries will receive a lump sum payment that equals the remainder of the premium which has not been paid to you yet.	$584
10-Year / 20-Year Certain	You receive income for 10 / 20 years only. If you die during the 10-year / 20-year period, your beneficiaries continue to receive income for the remainder of the 10 / 20 years.	$1,027 / $655
Joint Life Only	You receive income as long as at least one of you are still living.	$564
Joint Life with 10/20 Years Certain	You receive income as long as at least one of you are still living. If both of you die within the first 10 /20 years, your beneficiaries continue to receive income for the remainder of the 10 /20 years.	$560 / $552
Joint Life with Cash Refund	You receive income for your lifetime. If both of you die prior to receiving an amount equal to your premium, your beneficiaries will receive a lump sum payment that equals the remainder of the premium which has not been paid out yet.	$544

While an immediate annuity can provide guaranteed income and peace of mind, it comes at a price. Using the highest lifetime payout (Single Life), it would take about 13.5 years ($100K / $620/month) just to earn your money back. Your return ultimately depends on how long you live.

The quotes above do not include any sort of inflation adjustment, so the payments would remain the same over your lifetime. Inflation could really erode the purchasing power of your income over time. Immediate annuities can come with various inflation adjustments, however, it would lower your monthly income.

Consider the financial strength of the issuing insurance company. Your income is backed by their guarantee. If you purchase a SPIA, it is advised that only a portion of your assets be used.

Potential uses:

Stable lifetime income you can’t outlive.
Helps to provide an income “floor”, or guaranteed minimum monthly income.
For investors fearful of financial market fluctuations.

Here is an interesting chart that shows a comparison of taking regular withdrawals from a portfolio vs. immediate annuities.

Annual Rate or Return Needed for Systematic Withdrawals to Beat Immediate Annuities

Length of Retirement	Single Woman	Single Man	Married Couple
15 Years	0.15%	0.80%	0%
20 Years	3.10%	3.60%	1.80%
25 Years	4.60%	5.00%	3.40%
30 Years	5.4%	5.8%	4.3%
35 Years	5.85%	6.30%	4.80%

Assumptions: All are age 65 at retirement. Rates of return are net of investment and advisor expenses.

The above chart and accompanying article can be found here.