A single premium immediate annuity (SPIA) converts a lump sum into a stream of income that begins within 30 days of purchase. There's no accumulation phase — you hand over your money and payments start immediately. This makes SPIAs popular with new retirees who want to replicate a pension-style paycheck from a 401(k) rollover or inheritance.
Understanding the Break-Even Point
The break-even year is when your cumulative payments equal your original lump sum. With a $200,000 SPIA paying $1,320/month, you recover your principal in approximately 12.6 years. Live past that, and you're receiving pure profit. This is the core value proposition of a lifetime immediate annuity — longevity protection. The average American who reaches 65 has roughly a 25% chance of living to 90, a 25-year span well past most break-even points.
SPIA vs. Period-Certain: What's the Difference?
A life-only SPIA pays the highest monthly amount but stops at death — nothing goes to heirs. A period-certain SPIA guarantees payments for a set number of years regardless of death; if you die early, your beneficiary continues receiving payments. A life-with-period-certain combines both. Insurers price lifetime SPIAs using mortality tables, so older buyers receive more per month than younger ones. This calculator models period-certain payouts; for lifetime estimates, contact an insurer directly or see our annuity payout calculator.
Frequently Asked Questions
How much does a $500,000 immediate annuity pay per month?
At a 5.5% payout rate over 20 years, a $500,000 SPIA pays approximately $3,440/month, or $41,280 per year. The exact amount from an insurer depends on your age, gender, the payout option selected, and current interest rates. For a 70-year-old choosing a life-only payout, the monthly amount would be significantly higher than a 60-year-old, because the insurer expects to make fewer total payments. Use this calculator to model the math, then get actual quotes from licensed insurers.
Can I get my money back from an immediate annuity?
Generally, no — once you purchase a SPIA, the transaction is irrevocable. You give the insurance company a lump sum and in return receive guaranteed income. This is the trade-off: certainty of income in exchange for giving up control of the principal. Some contracts offer a commutation option or cash refund rider that returns a portion if you die early, but these reduce monthly payments. This illiquidity is the main reason financial planners typically recommend annuitizing only a portion of retirement savings, not the entire portfolio.
When is the best time to buy an immediate annuity?
The best time to buy a SPIA is when you need guaranteed income to start immediately — typically at or just after retirement. Buying at a higher interest rate environment (like 2023–2024) locks in better payouts. Every year you delay purchasing a life annuity after 60 generally increases the monthly payout by 5–8% because the insurer's expected payout period shortens. However, buying too early locks up capital that could grow in investments. Most financial planners suggest annuitizing between ages 65 and 75 for optimal income.
Is an immediate annuity the same as a pension?
Functionally, yes — both convert a lump sum or service history into guaranteed monthly income. The difference is structure: a pension is a defined-benefit plan funded and managed by your employer, while an SPIA is a product you purchase from an insurance company. Many retirees without a traditional pension use SPIAs to create their own "personal pension." For those comparing a lump-sum pension buyout to monthly pension payments, our
main annuity calculator can help model both options.