Annuity guide
Immediate annuities (SPIA)
An immediate annuity converts a lump sum into a monthly cheque that starts almost immediately and, in the most common version, continues for as long as you live. It is the most transparent annuity sold: no caps, no subaccounts, no riders to decode — just how many dollars a month your premium buys. It is also the hardest to undo.
Last updated September 19, 2026 · Reviewed against our editorial methodology
What an immediate annuity is
You pay an insurer a single premium. Within a month or so, income payments begin, and they continue on the schedule you chose — for life, for both lives in a couple, or for a fixed number of years. There is no accumulation phase and normally no account value to withdraw (see accumulation vs payout).
You are buying a personal pension. The insurer pools thousands of annuitants: those who die early fund those who live into their nineties. That pooling — the mortality credit — is why a SPIA can pay more each month than you could safely withdraw from a bond portfolio of the same size.
How the payout is calculated
Only four things drive the quote:
- Your age (and gender in most states) at the start date — the shorter the expected payment period, the higher the monthly amount.
- Interest rates when you buy, since the insurer backs the promise with bonds. Quotes locked at higher yields stay higher for life.
- The payout option — every guarantee you add for your heirs reduces your payment.
- The insurer's pricing and expenses, which is why quotes between carriers routinely differ by 5%–10% for identical terms.
Typical payouts by age
Illustrative monthly income from a $100,000 single-life SPIA with no refund feature, based on recent US quote ranges. Treat these as orientation only — real quotes depend on your state, gender, start date and the rate environment on the day.
| Age at start | Monthly income (single life) | Approx. annual payout rate |
|---|---|---|
| 60 | $525 – $585 | 6.3% – 7.0% |
| 65 | $580 – $650 | 7.0% – 7.8% |
| 70 | $650 – $730 | 7.8% – 8.8% |
| 75 | $790 – $900 | 9.5% – 10.8% |
| 80 | $960 – $1,100 | 11.5% – 13.2% |
Note that the payout rate is not a return. Each payment is partly your own capital coming back. Use our annuity payout calculator to model different premiums and ages, then confirm with live quotes.
Payout options
| Option | What it does | Effect on payment |
|---|---|---|
| Life only | Pays until you die; nothing to heirs | Highest |
| Life with period certain | Guarantees payments for e.g. 10 or 20 years even if you die | Lower by roughly 3%–10% |
| Cash refund | Returns any unpaid premium to beneficiaries | Lower by roughly 5%–12% |
| Joint and survivor | Continues to a spouse, often at 50%–100% | Lower by roughly 10%–20% |
| Period certain only | Fixed number of years, no life contingency | No mortality credit; similar to a bond ladder |
| Cost-of-living increase | Payments rise by a set percentage or with CPI | Starting payment lower by roughly 20%–30% |
Inflation is the real risk
A level payment feels generous at 65 and thin at 85. At 3% inflation, $1,000 a month buys about $550 of today's goods after 20 years. Three sensible responses: choose an increasing-payment option and accept a lower start; annuitise only part of your portfolio and keep the rest invested for growth; or ladder purchases over several years so later premiums buy income at older ages and possibly higher rates.
How SPIA income is taxed
With non-qualified money — money you have already paid tax on — each payment is split by an exclusion ratio: part is a tax-free return of your premium and part is taxable interest. Once you have recovered your full basis, typically around life expectancy, payments become fully taxable. With qualified money from an IRA or 401(k), the entire payment is ordinary income, and the annuity can help satisfy required minimum distributions for the amount annuitised.
Deferred income annuities and QLACs
A deferred income annuity works identically but starts income years later — at 80, for instance — which buys far more income per dollar because the insurer pays for fewer expected years. A QLAC is the version designed for IRAs and 401(k)s under IRS rules, letting you move a limited amount out of the required minimum distribution calculation until income begins, no later than age 85. The dollar and percentage limits are indexed, so confirm the current figures before you plan around them.
SPIA vs a bond ladder vs an income rider
- Versus a bond ladder: the SPIA pays more per month because of mortality pooling and never runs out — but the ladder keeps your capital accessible and inheritable.
- Versus a GLWB rider on a fixed index annuity: the rider preserves some access and a death benefit, and usually pays materially less income for the same premium. Compare the two in dollars per month before choosing.
- Versus delaying Social Security: for most people, deferring Social Security to 70 is the cheapest inflation-adjusted lifetime income available. Spend that option before buying commercial income.
Who it suits
A SPIA suits a retiree with a gap between essential expenses and guaranteed income, reasonable health, and enough other assets that locking a portion away permanently is comfortable. It suits people who would rather not manage withdrawals in a falling market. It is wrong for anyone in poor health, anyone whose main goal is leaving an estate, or anyone who would be annuitising money they may need in a lump sum.
How to buy one
- Decide the monthly income you need, not the premium you want to spend.
- Get quotes from at least three insurers for exactly the same option and start date.
- Check AM Best ratings and your state guaranty association limit; split large premiums across issuers.
- Price the options separately — see the dollar cost of a cash refund or joint life before adding it.
- Consider laddering purchases over several years rather than annuitising everything at once.
- Confirm the start date and payment frequency in the contract, and keep the free look period in mind.
Frequently asked questions
- What is an immediate annuity?
- An immediate annuity, or single premium immediate annuity (SPIA), is a contract where you pay an insurer a lump sum and income payments begin almost straight away — usually within one to twelve months — and continue for life or for a set period.
- What does SPIA stand for?
- Single premium immediate annuity: a single deposit, income starting immediately. It is the simplest annuity type and the easiest to compare between insurers, because the only real variable is the monthly payment per dollar of premium.
- How much does a $100,000 immediate annuity pay monthly?
- Recent US quotes for a single-life SPIA with no refund feature have run roughly $580–$650 a month at age 65, $650–$730 at age 70, and $790–$900 at age 75, varying by insurer, state and gender. A joint-life option for a couple reduces the payment, typically by 10%–20%.
- What happens to the money in a SPIA when you die?
- With a plain life-only SPIA, payments simply stop and nothing goes to heirs — that is why the payment is highest. A period-certain or cash-refund option continues payments or returns the unpaid premium to beneficiaries, at the cost of a lower monthly amount.
- Can you cash out an immediate annuity?
- Usually not. A SPIA is irreversible by design, which is exactly what allows the insurer to pool longevity risk and pay more than a bond ladder. A few contracts offer limited commutation or liquidity features; treat them as the exception and read the terms.
- When is the best age to buy an immediate annuity?
- Payouts per dollar rise with age because the expected payment period is shorter, so most buyers find the trade-off attractive between roughly 65 and 80. Buying earlier locks a lower payment for longer; deferring income to a later start date, via a deferred income annuity or QLAC, buys substantially more income per dollar.
Sources
- U.S. Securities and Exchange Commission, Investor.gov — Annuities.
- Internal Revenue Service — Publication 575 (exclusion ratio); QLAC rules under Treasury regulations.
- Social Security Administration — delayed retirement credits.
- Published SPIA quote ranges from multi-insurer quoting services, checked at the date shown above.
- AM Best financial strength ratings; NOLHGA state coverage limits.