Single Premium Immediate Annuity

A single premium immediate annuity is an annuity in its simplest form--it converts a sum of money into a stream of payments that are guaranteed for life. A single premium immediate annuity (SPIA) is sometimes referred to as an immediate annuity or a life annuity. A SPIA provides guaranteed payments to you (or you and a spouse if you are married) as long as you live. The amount that you use to purchase the annuity is transferred to the insurance company in a single, lump-sum payment. A single premium immediate annuity is relatively inexpensive (in terms of fees) when compared to other annuity types, and although this annuity type is straightforward, it is powerful and preferred by many financial advisors and economists. With a single premium immediate annuity: 1) the money goes in as a lump sum; 2) the money can be invested at a fixed or variable rate, and; 3) payments start right away and can be fixed or variable.

Annuity Duration

Duration is a measure of the time associated with cash flows or payments from a bond. Duration measures the amount of time (in years from the purchase date) required for a bond owner to receive interest and principal payments that are equal to the cost of the bond.

Long duration bonds have payments that are spread-out over a relatively long period of time (...

Questioning the Need for Bonds in Retirement

Conventional financial wisdom says that bonds should comprise an increasing percentage of a portfolio as the owner ages and heads into retirement.

In theory, a retiree’s need for income and a reduced tolerance for risk are the main drivers of the larger allocation to bonds.

A key consideration, though, is...

Are Inflation Adjusted Annuities Worth the Cost?

Inflation protection for fixed annuities would seem to be a sensible consideration given the fact that central banks around the world are doing everything they can to reflate in the wake of an historic deleveraging.

After all, the worst possible place to be if and when inflation does kick-in is on the receiving end of nominal (not adjusted for inflation) fixed payments, and most fixed annuities fit this description perfectly.

While the inflation protection makes sense in theory, it turns-out that inflation-protected annuities may not be so sensible in practice...

Research Highlights Fixed SPIAs

Retirement researcher Wade Pfau published a research paper titled “An Efficient Frontier for Retirement Income .” Pfau’s paper analyzes the relative merits of equities, bonds, fixed single premium immediate annuities (SPIA), inflation -adjusted SPIAs and variable annuities with guaranteed lifetime withdrawal benefits ( GLWB ). Each of these allocation options are examined in the context of achieving retirement spending goals. Pfau creates an efficient frontier for a...

How Much Annuity Income Would the Median 401k Balance Produce?

The Lifetime Income Disclosure Act introduced by the U.S. Senate last year would require...