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Top Rated Fixed Annuity Companies
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A SPIA is an agreement between you and an insurance company designed solely for revenue purposes. Unlike the reverse, the immediate one skips the accumulation phase and starts paying you income in a one-time payment immediately after you make the purchase or within a year. SPIA is also called immediate payment annuity, income annuity and accelerated annuity.
This is the oldest type, dating back to the ancient Roman Empire. The word actually comes from the Latin, annua, meaning annual payment. Roman soldiers were permanently paid to compensate for their service in the army.
Some consider it the easiest and most customer friendly. But it represents only a small portion—about 10 percent—of annuities sold each year. MarketWatch writer Stan Hathcock argues that this is because brokers offer more complex annuities that pay higher commissions but aren't as good for clients.
In 2022, total sales of $267 billion to $288 billion were predicted. It is a whopping $254.6 billion by 2021.
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People approaching retirement age may choose this type because they will be able to make larger contributions without the limitations of 401(k) plans, IRAs, and other popular retirement plans. SPIA allows seniors to supplement Social Security income and pension plans, which may not be sufficient to cover living expenses in retirement. In fact, employees who are retiring can roll their 401(k) plans into a SPIA to build meaningful income in retirement.
Instant loans can be customized. Owners can receive monthly, quarterly, semi-annual or annual payments. During the purchase, you and the advisor will optimize your income. Payments can be made over a lifetime or two lifetimes, such as guaranteed lifetime payments, and can include beneficiary protection for your heirs. Payments can also be set for a specific period of time, such as 10 years, known as a "fixed term". Any payment you receive is made up of a portion of your premium and interest income.
In case of fixed rate, each owner's payment will be the same. If variable, each check amount will be different because the underlying calculations will be different. Both these options help protect money from inflation, but a fixed annuity offers more certainty than a variable annuity.
SPIA interest rates are generally more favorable than Certificate of Deposit (CD) and US Treasury rates.
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Find out how it can provide you with a guaranteed monthly income throughout your retirement. Talk to one of our skilled financial experts today to find out which of our industry-leading products fit your long-term financial strategy.
An individual or company can purchase a SPIA using a lump sum from an insurance company. This lump sum, or premium, must be paid up front.
Your payment amount will be calculated based on the type of purchase you made, the term of the contract, your age and gender, and a number of other factors.
The premium you use for financing will affect how your payments are taxed. Annuities are insurance products, not investments, and the payments they produce are considered a form of income, so they are subject to income tax.
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If you are financing yourself with after-tax dollars, you are a non-qualified owner. This means that when you receive payments, a portion of each payment is treated as a return of principal, which is not taxed.
Additionally, if you purchase in a state that charges state premium tax on annuities, you will pay the premium tax at the time of purchase.
Conversely, if you make a purchase with pre-tax cash, you qualify and the full amount of each payment will be subject to ordinary income tax rates.
Remember that a SPIA is an immediate annuity, which means your premium is immediately converted into a regular cash column. If that's not your goal – for example, if you have another form of retirement income or you prefer to receive a lump sum for special reasons – SPIA is not the right product for you.
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When you buy a policy, you transfer risk to the insurance company, which, in turn, starts paying you in the first year of your contract. A fixed annuity is invested in stocks and bonds through the general fund of the insurance company and the interest rate cannot exceed a certain minimum. Variable rates offer riders that guarantee your value won't fall below a certain limit even if the stock market falls and your sub-accounts lose money.
Risk pooling, or spreading the risk over multiple accounts, allows the premiums of owners who die early to be used to pay benefits for those who outlive them. These "death credits" can increase your return over other options and, by opting for a life benefit, you can protect against the availability of your disposable assets at any time. In fact, depending on how long you live, you may actually end up with more money than you originally invested plus anything your account earned in interest or appreciation.
Buyers appreciate the regular and reliable payments offered by a single immediate annuity. Once installed, it does not require immediate maintenance or work.
Most people use lump sum payments for their retirement. A financial advisor will help you calculate the amount needed to finance the income you want. Once you know how much you'll need, you can enter your data into our instant calculator to get an estimated monthly income figure. Many seniors prefer this trust to the volatility of the stock market.
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For an additional cost, you can purchase a cost-adjustment rider (COLA) for your SPIA, which will increase your payment over time based on how the rate of inflation has increased. However, it is important to carefully consider this option with a financial advisor as this feature often results in significantly lower initial payments.
Some insurance companies offer one-time cash advance options for transactions that require immediate cash. Otherwise, the annuity is fixed and pays only the amount specified on the payment schedule.
There are some misconceptions that a SPIA will not benefit your heirs when you pass. While it is possible to choose an annuity that is optimized for maximum income and has no death benefits, known as life only, most SPIAs have death benefits on sale. A popular option to explore with a financial advisor is "life with cash out," where the insurance company pays heirs the balance of the initial deposit that has not been paid upon death.
The most important disadvantage is that immediate annuity is not refundable. Once your lump sum payment is converted to an installment payment, you will no longer have control or access to your payment. In essence, you are trading your money for guaranteed income. This means that the money may not be available for emergencies or other uses.
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