By: Mark D. Milbrod, CLU
Partner, Agent Support Group-October Blog


One of the most underused planning tools is The Single Premium Immediate Annuity (or SPIA).    They are extremely versatile and be used effectively in so many sales scenarios.  We find ourselves explaining the benefits to so many advisors who have not yet used the SPIA to its maximum potential.

They are particularly helpful in our current economic cycle.   The payouts are based on life expectancy so the older you are, the higher the income is.  The income is guaranteed so the market risk factor is taken out of the equation.  There are a number of scenarios where you can use them effectively…

Market Downturns

In the case where you have clients that have lost money in the market and have not fully recovered, SPIAs are a great way of making up the difference without risk.    The downturns probably impacted their ultimate desired amount of retirement income and a SPIA can be utilized to fill in those gaps and possibly put them back to where they planned on being.

Tax Planning

One of the major benefits of SPIAs  is the taxation element.  When you start receiving income, you are taxed on only the amounts coming out on an annual basis.  In addition, with non-qualified assets, a large majority of the income is considered a return of basis and therefore not taxable.  Only a small portion of the income is considered taxable.  Also, once you annuitize, the corpus is out of your taxable estate.  This can be particularly helpful for estate tax inclusion.

SPIA/Life Combo

If clients have non-qualified funds that are not needed, you can take income (annuitize), pay the tax and with the net income, make gifts and  purchase trust owned life insurance outside of the taxable estate.  This technique is extremely helpful with respect to transferring assets to the next generation.

RMD Scenarios

For clients that are taking Required Minimum Distributions (RMDs) from IRA assets when they turn 70½, SPIAs can be a helpful tool.  The qualified funds can be annuitized and the income generated will be fully taxable on an annual basis but the corpus of money will be out of the taxable estate.  In this scenario, the net proceeds (out of the IRA), can be used to purchase life insurance.  The net result is a significant amount of income tax savings and the heirs can ultimately receive a greater amount of assets tax free.

Competing with Guaranteed Income Benefit Riders

There is a lot of talk about the Guaranteed Income Benefit Riders on Variable Annuities.   Often times if you compare the Guaranteed Income payouts to that of a SPIA, the SPIA incomes are guaranteed on a higher level.  It is worth comparing if you have any situations like this.

Longevity Planning

One of the major concerns of people today is outliving their retirement assets.    A huge benefit of a SPIA is that you cannot outlive the income stream.  Whether you live 5 years or 50 years, the income will continue for your lifetime. This can easily be set up for a husband and wife so that the income will continue until the second spouse passes.

Multi-Generational Gifts

SPIAs can also be used to pay income on the life of multiple annuitants.  Perhaps a grandparent wants to provide income to a grandchild.  Funds can be deposited into an annuity with both listed as annuitants.  Even after the grandparent passes, income can continue for the life of the grandchild.   This can be a great way of being remembered for years to come.

As you can see, the SPIA can be used in a number of ways.  The income can be based on one life or multiple lives.  They key is to know the versatility that this product offers and how you can help your clients with a number of planning scenarios.  The tax favored treatment of most distributions is what really makes the SPIA so attractive.

So, don’t forget about this Forgotten Planning Tool.  It will definitely open many opportunities.

Find more of Mark’s Bark’s Blogs on our website: