Like any financial product, Single Premium Immediate Annuities (SPIAs) are not ideal for every person (and never a solution for someone’s entire portfolio). The primary reasons not to buy a SPIA are (1) you’re looking to take market risk in the hopes of earning a higher return, (2) you want a product that has a readily accessible cash value, or (3) you’re years away from retirement.
No Market Exposure
The income you’ll receive is determined upfront, fixed, and isolated from any market upside (or downside) potential. While this is a positive attribute for those focused on insurance coverage, it isn’t the solution for those seeking a more investment-style product.
Limited Liquidity & No Cash Value
The SPIA does not offer much liquidity and does not have a cash value that can be withdrawn or borrowed from. SPIAs should be thought of as a paycheck, like a pension.
Years Away From Retirement
The SPIA is an immediate annuity, meaning that the stream of guaranteed lifetime income will begin within 12 months from purchase. Immediate annuities are meant for people about to retire or already in retirement. Instead, Deferred Income Annuities offer the same longevity protection, but the guaranteed income starts years (between 2-40) in the future.
If instead you’re looking for a guaranteed retirement paycheck that starts in the future, head to the DIA Guide.