Single Premium Immediate Annuity (SPIA) Calculator
Estimate the guaranteed income stream you can receive by converting a lump sum into a lifetime or fixed-term annuity.
What is an Immediate Annuity?
A Single Premium Immediate Annuity (SPIA) is a financial contract between an individual and an insurance company. You provide a lump-sum payment (the premium), and in exchange, the insurer provides a guaranteed stream of income that begins almost immediately—usually within 30 days to one year.
How the Payout Rate is Calculated
Unlike a traditional savings account where you only earn interest, an immediate annuity payout consists of three components:
- Return of Principal: A portion of your original investment is returned to you in every check.
- Interest Earnings: The insurer invests your premium and passes along earnings.
- Mortality Credits: In life-contingent annuities, funds from those who die earlier than expected are pooled to provide higher payouts to those who live longer.
Key Factors Affecting Your Payments
The "Annual Payout Rate" is influenced by several variables that insurers use to determine your monthly check:
- Age: Older individuals receive higher payout rates because their life expectancy is shorter.
- Gender: Statistically, women live longer than men, often resulting in slightly lower monthly payments for females of the same age.
- Current Interest Rates: Payout rates are partially tied to the yields of high-quality corporate bonds and Treasuries.
- Payout Period: Choosing a "Life Only" payout yields the highest check, while "Period Certain" (e.g., 20 years guaranteed) or "Joint Life" options typically offer lower payouts.
Example Calculation
Suppose a 65-year-old investor purchases an immediate annuity for $200,000 with an annual payout rate of 7%.
- Annual Total: $200,000 × 0.07 = $14,000
- Monthly Payment: $14,000 ÷ 12 = $1,166.67
In this scenario, the investor receives over $1,166 every month for the rest of their life, regardless of how the stock market performs or how long they live.