What is an immediate annuity?
An immediate annuity—often called a Single Premium Immediate Annuity (SPIA)—is a simple contract you buy from an insurance company. You hand over a lump sum, and in return the company guarantees to pay you a stream of income. Those payments usually begin within 30 days to 12 months of purchase.
You can choose how long payments last: a fixed period (like 10 or 20 years) or for as long as you live. You can also choose to cover a spouse, ensuring income continues for their lifetime too.
What does an immediate annuity do?
At its core, an immediate annuity provides reliable income you can’t outlive. It smooths out financial stress by taking market ups and downs out of the equation.
Instead of worrying about selling investments or drawing down savings to cover expenses, you get a steady paycheck. The insurance company takes on the risk of longevity—that’s their job.
Real world example: Susan, a retired teacher, used $150,000 of her savings to buy an immediate annuity. Every month, a predictable check covers her groceries, utilities, and property taxes. She says it feels like having a “second pension.”
How does it work?
Your payment amount depends on a few factors:
- The size of your deposit
- Current interest rates
- The length of time the income is guaranteed for – i.e. lifetime, number of years
- If lifetime income is chosen, your age and gender
You also decide how often you want income—monthly, quarterly, or annually.
Immediate annuities can be purchased with either qualified money (from accounts like IRAs) or non-qualified money (savings outside tax deferred retirement accounts). The tax treatment is different:
- Qualified money: All payments are taxable as ordinary income.
- Non-qualified money: A portion of each payment is considered a tax-free return of your original investment. The insurance company calculates this using the “exclusion ratio.”
Payment options
Immediate annuities offer flexibility in how income is structured. Some of the most common choices include:
- Single Life Only – Payments last as long as you live, then stop.
- Single Life with Period Certain – Income for life, with a guarantee that payments continue to your beneficiary if you pass away within a set period (5–20 years).
- Single Life with Refund Options – Income for life, but if you pass away before getting back your full deposit, your beneficiary receives the remainder (either as installments or a lump sum).
- Joint Life – The same as the Single Life options above, but the Income is based on both of your lives and continues as long as either is alive.
- Period Certain Only – Payments for a set time (e.g., 10 or 20 years). If you live longer than the term, payments stop.
Real world example: When Robert retired, his priority was making sure his wife, Ellen, would always have income. He purchased a joint-life annuity. Even after Robert passed away, Ellen continues to receive steady payments each month.
Things to keep in mind
Once you buy an immediate annuity, it’s generally an irrevocable decision. After the short “free-look” period, you can’t cancel it or take your money back. That makes it important to think carefully about:
- How much of your savings to commit
- Which payout option best fits your goals
- Whether you have access to emergency funds outside the annuity
Immediate annuities may not be the best fit for people who want to leave a large inheritance or who may need their money back in a lump sum.
Why an immediate annuity might be right for you
The biggest question in retirement is straightforward: Will my money last as long as I do?
For many retirees, priorities shift from chasing market growth to making sure the basics are covered. That’s where an immediate annuity shines. It acts like a personal pension, turning part of your savings into guaranteed income.
Benefits include:
- Steady payments for life – Easy to budget with predictable checks.
- No market risk – Payments don’t change if the market crashes.
- Longevity protection – Income can continue as long as you live.
- Simplicity – No portfolio management, no withdrawal schedules.
- Peace of mind – Confidence knowing core expenses are covered.
- Tax advantages – Especially when purchased with non-qualified funds.
Real world example: Mark, a 68-year-old retiree, was tired of juggling investments and worrying about when to sell. He put part of his savings into an immediate annuity, and now a check arrives every month—no decisions required. He calls it his “set it and forget it” income.
Another example: Linda wanted guaranteed income but didn’t want her kids left out if she passed away early. She chose a cash refund option. Now she enjoys steady income, and if she doesn’t live long enough to get her full investment back, her children will receive the balance.
The bottom line
An immediate annuity can simplify your retirement finances by providing guaranteed income you can’t outlive. It’s not for everyone—but for many, it serves as the steady foundation that covers everyday expenses and reduces financial stress.
If you are interested in seeing what your income options are, please call us at 888-736-2396 or click here to request an income quote.
