December 21, 2025 · Brandon Roberts
Single Premium Immediate Annuities: The Case for Guaranteed Retirement Income
The most widely used retirement income strategy in America has a problem that almost no one talks about honestly.
The 4% rule — the idea that you can withdraw 4% of your portfolio in year one, adjust for inflation each year after, and your money should last 30 years — has become the default framework for retirement income planning. Financial planners build around it. Retirement calculators assume it. Most people who have heard any retirement advice at all have heard some version of it.
But the research tells a different story when you extend the timeline past the original 30-year window. Recent analysis examining outcomes through age 100 found failure rates that should give anyone pause:
"Failure" means the portfolio is fully depleted before death. Based on historical simulation data including periods of high inflation and poor market returns.
One in five people following the 4% rule would be completely broke by 95. Half would run out of money by 100. These are not theoretical edge cases. The number of Americans reaching advanced ages is growing every year.
A retirement income strategy that carries a coin-flip chance of total failure deserves more scrutiny than it typically gets. And it raises a straightforward question: is there a better way to generate retirement income that doesn't depend on guessing right about markets, withdrawal rates, and how long you'll live?
There is. It's been around for centuries. And recent legislation just made it significantly more attractive from a tax perspective.
What a Single Premium Immediate Annuity Actually Does
A single premium immediate annuity is the simplest financial product in retirement planning. You give an insurance company a lump sum. In return, they pay you a guaranteed income every month for the rest of your life. That's it. No moving parts, no market exposure, no decisions to make after the initial purchase.
The income doesn't fluctuate with the stock market. It doesn't depend on interest rates after purchase. It doesn't stop if you live to 85, 95, or 105. The insurance company has made a contractual promise, and they pay it regardless.
The trade-off is real: you give up access to the lump sum. There is no cash value to withdraw, no balance to check, no account to leave to heirs from the annuitized portion. You are exchanging a pile of money for a stream of income. For many people, that trade-off is psychologically difficult — which is precisely why SPIAs are underused relative to how effective they are.
Think of it this way: a SPIA is the closest thing to a pension that someone without a pension can buy. You're creating guaranteed lifetime income from your own assets — the same thing your parents' or grandparents' employer used to provide automatically.
Three Retirement Strategies Compared
Recent research compared three approaches to generating retirement income from a $1 million portfolio, each starting at age 65 with Social Security income included. The analysis used realistic simulations incorporating variable investment returns, changing interest rates, inflation, mortality, and actual product costs.
4% Rule Only
100% SPIA
50/50 Split
Based on simulation research using a $1M starting portfolio at age 65 plus Social Security. Results reflect averages across variable market conditions. Not a projection of any specific investment or product. Individual outcomes will vary.
The 50/50 strategy — splitting the portfolio between a SPIA and investments — produced nearly as much income as full annuitization, eliminated the risk of running out of money entirely, and still preserved an average of $562,400 for heirs or emergencies. The median legacy was $500,000, essentially the original amount allocated to investments.
The 4% rule produced the lowest income of the three strategies and carried the highest risk. Its only advantage was in legacy value — but that average is misleading because it includes simulations where the retiree died early with most of the portfolio still intact, alongside simulations where the portfolio was completely depleted.
The partial annuitization strategy captured most of the upside of full annuitization while preserving the flexibility that most retirees want. This is why it deserves serious consideration.
How Partial Annuitization Works in Practice
The strategy is straightforward. At retirement, you purchase a SPIA with a portion of your retirement assets — the research used 50%, though the right percentage depends on your specific situation. The SPIA immediately begins paying guaranteed monthly income for life. The remaining assets stay invested and available for withdrawals, emergencies, or legacy.
The SPIA covers your baseline income needs. Because that floor is guaranteed, the investment portion of the portfolio doesn't carry the full burden of funding your retirement. Withdrawals from the investment side can be smaller, less frequent, or in many cases unnecessary in the early years. This means the investment portfolio has room to grow rather than being steadily depleted from day one.
The psychological effect is significant. Retirees who depend entirely on portfolio withdrawals often describe a low-grade anxiety about spending — a feeling that every dollar used is a dollar they might need later. People with guaranteed income covering their monthly expenses rarely describe the same experience. When the check shows up every month regardless of what's happening in the markets, spending it doesn't feel like depleting something. It feels like living your life.
What about the investment portion? The allocation of the non-annuitized assets is a separate decision that depends on your risk tolerance, timeline, and overall financial picture. We specialize in the guaranteed income side — the SPIA, MYGA, and cash value life insurance components. The investment allocation is a conversation for your financial advisor or wealth manager.
SECURE 2.0 Removed the Tax Penalty on SPIAs
Until recently, there was a legitimate tax reason to avoid purchasing a SPIA inside a qualified retirement account like an IRA or 401(k). The old rules penalized partial annuitization by forcing higher required minimum distributions than were necessary. SECURE 2.0 fixed this.
The Old Problem
Under previous rules, if you split your IRA between a SPIA and investments, the SPIA income did not count toward satisfying the RMD on your remaining assets. You received the SPIA payments plus had to take the full RMD from your investment balance. This meant more money was forced out of the account than would have been required without the SPIA — creating higher taxable income and faster depletion of the investment portion.
What Changed
SECURE 2.0 now allows SPIA income to count toward your total RMD requirement. The math works in your favor:
| Old Rules | SECURE 2.0 | |
|---|---|---|
| Total IRA value | $1,000,000 | $1,000,000 |
| Amount in SPIA | $500,000 | $500,000 |
| Amount in investments | $500,000 | $500,000 |
| Annual SPIA income | $45,000 | $45,000 |
| RMD on investments (age 73) | $18,868 | $0 |
| Total forced distribution | $63,868 | $45,000 |
Hypothetical example for a 73-year-old with a $1M IRA split 50/50 between SPIA and investments. RMD calculated using IRS life expectancy factor of 26.5 years. Individual results vary.
Under the old rules, this retiree was forced to distribute $63,868 in taxable income. Under SECURE 2.0, the SPIA income of $45,000 more than satisfies the entire RMD requirement, so nothing additional needs to come out of the investment portion. That's $18,868 per year that can stay invested and continue to grow.
Research quantifying this benefit found that SECURE 2.0 reduces RMDs on the investment segment by an average of 76% at age 73, and the reduction remains significant even at age 90. The total taxable income reduction for a retiree using the 50/50 strategy was approximately 73% compared to the old rules.
This is not a small adjustment. It fundamentally changes the economics of using SPIAs inside qualified retirement accounts.
What People Worry About — and What the Data Shows
“I lose access to my money.”
This is the most common objection, and it's legitimate. With a SPIA, you do give up access to the lump sum you annuitize. But in a 50/50 strategy, you still have half your portfolio available for emergencies, healthcare costs, or anything else that comes up. The research shows that this investment portion typically maintains its value because the SPIA income reduces or eliminates the need for withdrawals.
“What if I die early?”
A valid concern that has a straightforward solution. Most SPIAs can be purchased with a refund of premium provision — if you die before receiving payments equal to your initial premium, the insurance company continues payments to your beneficiary until the full premium amount has been distributed. This slightly reduces the monthly income but ensures your heirs aren't left with nothing if you die unexpectedly.
It's also worth remembering what insurance is: protection against adverse outcomes. You don't consider homeowner's insurance wasted if your house doesn't burn down. A SPIA is longevity insurance. Its purpose is to protect you if you live longer than expected, and you shouldn't view it as a bad decision if you don't.
“SPIA payments don't keep up with inflation.”
True for standard SPIAs, which pay a fixed nominal amount. This is exactly why partial annuitization works better than full annuitization for most people. The SPIA covers your baseline expenses with guaranteed income. The investment portion provides inflation protection and growth potential over time. The two pieces complement each other — the SPIA provides stability and certainty, while the investment portfolio provides flexibility and purchasing-power protection.
“What if the insurance company fails?”
Insurance company failures are rare, but the concern has merit. Two layers of protection exist: first, purchasing from highly rated carriers significantly reduces the risk. Second, every state maintains a guarantee association that provides coverage up to certain limits (typically $250,000 to $500,000 depending on the state) if an insurer becomes insolvent. The simulation research actually accounted for insurer bankruptcy risk and still found partial annuitization to be the superior strategy.
Is a SPIA Right for Your Situation?
None of this means everyone should rush out and annuitize half their retirement savings. Individual circumstances vary. Your health, your other income sources, your legacy goals, and your comfort level all factor into whether a single premium immediate annuity makes sense — and if so, how much to allocate.
But the default assumption is worth questioning. For decades, the retirement planning conversation has treated SPIAs as unusual or niche products. The research suggests the opposite: that for most retirees without pensions, some level of annuitization produces better outcomes across income, risk, and legacy than relying entirely on portfolio withdrawals.
The question isn't "why would I buy a SPIA?" It's "how much of my retirement income gap could a SPIA close — and what would that do for my peace of mind?"
That's a question worth answering with real numbers based on your specific situation, not with generalizations. And it's one we're happy to help with.
Wondering what a SPIA could do for your retirement income?
We'll walk through your situation, identify the income gap, and show you what guaranteed income would look like with real numbers. About 15 minutes. No sales pitch.
Schedule a callProduct suitability depends on individual circumstances including age, health, income needs, time horizon, and existing assets. This is general education, not a recommendation for any specific product.
Why SPIAs Make More Sense Than Most People Think
In this episode, we dig into the data behind single premium immediate annuities — including why partial annuitization outperforms the 4% rule and how SECURE 2.0 changed the math.