What are single-premium annuities?

Simply put, any annuity funded by one payment is a single-premium annuity. Usually, this is a large lump sum from retirement savings, a settlement, or another financial windfall.

A young man speaking to an elderly friend about his retirement goals.

What are the different types of annuities?

As retirement approaches, many people worry about how much they have saved and how long their savings will last. That is entirely normal. There are many different ways you can approach your golden years, and with any approach there are variables you just can’t anticipate. A whole industry has developed to help you manage your retirement finances, and there are dozens of different calculations, like the 4% rule, that you can use.

Another option is to explore annuities. Annuities are an insurance product that can make the question of how long your savings will last simply go away. That’s because with most annuities, you’ll receive retirement income for as long as you live1. There are a few different types of annuities, but some of the most common are single premium. These are sometimes also called lifetime annuities or income annuities.

How do single-premium annuities work?

You pay a lump sum to an insurance company, and in exchange the company returns regular income payments to you during retirement, most often for your entire life. If you are at or near retirement, already have some savings, and will need income soon, a single-premium immediate annuity could be right for you.

How much does a single-premium annuity cost?

Most annuities come with a minimum premium amount. At New York Life, you can purchase an annuity with as little as $10,000. The more your premium is, however, the higher your monthly payments will be in retirement. Other factors that can affect how much you receive are your age, your gender, when you plan to start receiving money and the prevailing interest rate environment.

Fixed vs. variable growth in deferred annuities

The funds in a single-premium deferred annuity can grow over time, depending on your preferences. Everyone has different needs and a different appetite for risk. If you want the security of knowing precisely how much your annuity will grow, a fixed annuity offers you an exact percentage that your funds will grow each year. If, on the other hand, you would rather invest those funds in the markets, then a variable annuity is likely right for you. Variable annuities 2 have the potential for higher growth, but comes with market risk; you can lose money in a variable annuity.

Pros and cons of single-premium annuities

Annuities can be a smart choice if you’re worried that you might run out of retirement funds or you are unsure how to budget your savings. But they may not be right for everyone. Here are some things to keep in mind when considering an annuity:

Benefits:

  • Can provide reliable lifetime income
  • Can help with budgeting your retirement spending
  • Can be customized
  • May include a death benefit

Drawbacks:

  • Potentially low to no liquidity
  • Lower savings in case of emergencies
  • Subject to fees and expenses, including surrender charge for the earlier years.

Learn more about the benefits and drawbacks of annuities.

Single-premium immediate annuity (SPIA annuity)

A single-premium immediate annuity can also be called an income annuity. It’s designed to give you peace of mind and make sure that you never outlive your retirement savings. Usually, your single lump-sum payment to fund the annuity comes from a 401(k) or other investments. Then, as early as the following month, you can receive the first of your guaranteed1 lifetime payments.

Is a single-premium immediate annuity right for me?

When you purchase this type of annuity, you are likely already at or close to retirement and would like your income payments to begin right away. You probably have some savings but are unsure how much you can safely use every year and how long your savings will last. If this sounds similar to your situation, our agents can help you decide if a single-premium immediate annuity is right for you. 

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1Guarantees associated with an annuity is based upon the claims-paying ability of the issuing insurance company.

2Variable annuities are offered by properly licensed Registered Representatives of NYLIFE Securities LLC (Member FINRA/SIPC), a Licensed Insurance Agency and a New York Life Company.