What are single premium annuities?

A single premium annuity is an annuity contract that is fully funded with just one payment. Since these products typically require a large amount of capital, they are often purchased with funds taken from retirement savings, an inheritance, or some other financial windfall.

How single premium annuities work

Single premium annuities are some of the most used tools in the retirement industry. That’s because these products turn a lump sum of money into income payments that you will receive every month in retirement. What’s more, these payments are often guaranteed to last for the rest of your life,¹ so they can be an effective supplement to Social Security—and one more reason you don’t have to worry about outliving your money.

What does a single premium annuity cost?

While there are a lot of factors that determine the cost, in general you can purchase a single premium annuity at New York Life for as little as $10,000.² With annuities, however, it’s important to remember that the more money you pay into your policy, the larger your income payments will usually be in retirement.

Why single premium annuities are different from other annuities

While all annuities have the same mission—to generate income in retirement—how they go about it can vary greatly. Here’s a quick look at some of the many annuity categories available today and what makes each one unique:

• Single premium annuities – Annuities that are purchased (funded) with a lump-sum payment.
• Flexible premium annuities – Annuities that can be purchased (funded) over time.
• Fixed annuities – Annuities that allow your money to grow at a fixed rate, so your monthly payouts are guaranteed to remain level.¹
• Variable annuities – Annuities that invest your money and give you the opportunity to increase the amount of your monthly payouts. It’s also important to remember that variable annuities come with market risk, so you can potentially lose money in these products.³
• Immediate income annuities – Annuities that start delivering income right away—often by the next month.
• Deferred income annuities – Annuities that typically offer larger monthly payouts because you buy them prior to retirement —or that allow you to delay your payouts until later in retirement.
• Lifetime income annuities – Annuities that are guaranteed to generate income payments for the rest of your life—no matter how long you live.¹

As you look into annuities more closely, you may find that some categories can be combined so that it’s easy to get all the features and benefits you need. Here are a few examples:

Single premium deferred annuities

With a single premium deferred annuity (SPDA), you can purchase an annuity well before it’s needed (that’s the deferred part) and do it all at once, using a single lump-sum payment. For example: you could put $100,000 into a SPDA at age 50, and not start taking payments until you retire at age 65. That way, your principal has 15 years to grow and will generate larger payouts for you in retirement.

Single premium immediate annuities

A single premium immediate annuity (SPIA) also allows you to purchase your annuity in one lump sum, but in this case, you start to receive income right away (usually the next month). Note: This product is usually only available for those who are age 59½ and older as benefits are intended to provide retirement security.

Fixed deferred and variable deferred annuities

Deferred annuities were designed for people who know that they will need retirement income sometime in the future. The difference between a fixed and variable deferred annuity is what happens to your money in the meantime. With a fixed product, you know exactly how much your money will grow each year, while a variable annuity allows you to pursue higher returns by investing in the market.⁴

Learn more about different types of annuities.

Pros and cons of single premium annuities

Single premium annuities can be a smart choice if you need a dependable source of retirement income and have enough money on hand to make a lump-sum purchase. And while these products can help make your retirement more relaxing and enjoyable, they may not be right for everyone. Here are a few things to keep in mind when considering a single premium annuity:

Pros:

• Can provide reliable lifetime income
• Can help with budgeting your retirement spending
• Can be customized
• May include a death benefit
• Single payment makes it easy

Cons:

• 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.

Is a single premium annuity right for me?

If you are considering this type of annuity, you probably have some money set aside for retirement, but are concerned about how long it will last. If so, you can use a single premium annuity to turn a portion of that money into a steady flow of income that will help meet your needs or enhance your quality of life in retirement. To find out more, or just make sure a single premium annuity is your best option, contact a New York Life financial professional today.

Single premium annuity FAQs

RELATED CONTENT

¹Guarantees associated with an annuity are based upon the claims-paying ability of the issuing insurance company.
²In addition to the premium, annuities are subject to fees and expenses, including surrender charges that may be imposed during the early years of the contract.
³Variable 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.
⁴Variable annuities have the potential for higher growth, but come with market risk; you can lose money in a variable annuity.