Immediate, or Income Annuities (SPIA)
By:  Paul M. League, QFP, CFP^®

A Single Premium Immediate Annuity, or "SPIA", is an investment provided to one who pays over to an insurer a given cash amount in exchange for a guaranteed stream of income.

The income can last for either the annuity owners/investors lifetime, or for the lifetime of the investor and a spouse, or for a specified number of years, or for what is referred to as life with a "period certain" (i.e. should you die before the end of that "period certain" your designated beneficiary receives either your payments, or their cash equivalent, for the remainder of the period of time selected).

There are two basic types of Income Annuities, Fixed or Variable, and as such there are also two basic income options; namely, either a "fixed" income amount that does not adjust for inflation,  or a "variable" one, where the first payment is based on the life expectancy of the investor/annuitant(s), plus an assumed interest rate (a kind of "base rate" used to determine the initial income payment, of typically around 3-4%), adjusting the payment throughout the payout phase of the annuity. "Variability" factors into the Variable Annuity investment in two ways; one, you get to select and then vary your invested assets over several professionally managed equity, or income based investment sub-accounts; and two, depending on the performance of the underlying sub-accounts (i.e. a higher or lower rate of return than the aforementioned conservatively assumed interest rate), your actual income payments will vary accordingly.

Whether or not an Annuity is the right investment for you, or whether it should instead make up only a portion of your total investment portfolio,  depends on many factors.  In the case of most "Immediate or Income Annuities", it is important to note that once these are "annuitized" (i.e. as is the case with any "Immediate" Annuity) most Insurers take the position that you have traded your rights to any control or access over the invested principle and cash accumulations, in exchange for their management and delivery of the income guarantees.  

Annuities are as varied as the companies issuing them; therefore, be certain to seek the guidance of an informed Advisor prior to purchase.

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