What’s a SPIA?

A single premium immediate lifetime annuity is a contract with an insurance company whereby:

You pay them a sum of money up front (known as a premium), and
They promise to pay you a certain amount of money periodically (monthly, for instance) for the rest of your life.

For some annuities, the payout is a fixed amount each period — making for a single premium immediate fixed annuity.

For other annuities, the payout is linked to the performance of a mutual fund — making for a single premium immediate variable annuity. For the most part, I’d suggest steering clear of variable annuities. They tend to be complex and expensive. And because they each offer different bells and whistles, it’s difficult to make comparisons between annuity providers to see which one offers the best deal.

In contrast, fixed SPIAs are helpful tools for two reasons:

They make retirement planning easier, and
They allow for a higher withdrawal rate than you can safely take from a portfolio of stocks, bonds, and mutual funds over the course of a potentially-lengthy retirement.

Note: It’s possible to buy a fixed SPIA with a payout that adjusts upward each year in keeping with inflation. Naturally, inflation-adjusted fixed annuities require higher initial premiums than fixed annuities without an inflation adjustment.