SPIA Structure: Period Certain Only
What I love about this country is that even a perfect product can be changed or altered at the customers demand. Black coffee is my drink of choice, but that perfect blend is one big alteration when you walk into a Starbucks. The same can be said about Single Premium Immediate Annuities (aka: SPIAs).
The original annuity design from the Roman Times, and the only annuity type sold for over 200 years in this country until 1952. Then, variable annuities hit the scene, but SPIAs are still the most pro- consumer annuity in my opinion. SPIAs were put on the planet to solve for lifetime income, and what is now called “longevity risk.” That’s a fancy term for the fear of outliving your money. That is a real concern for most people.
However, some people do not want to solve for lifetime income, or just want to fill a specific time gap for a guaranteed income amount. That’s when a “Period Certain” Single Premium Immediate Annuity makes sense, and is the ultimate income gap filler.
Choose Your Time Period
“Period Certain” Single Premium Immediate Annuities allow you to dictate and customize the specific term of the income stream you desire. A typical short term choice would be a 5 year payment guarantee, and some period certain payments are as long as 40 years.
A period certain payout is a combination of return of principal and interest, so the ROI (Return on Investment) is an easy calculation. Don’t expect “investment type” phenomenal returns, expect a contractual guarantee that you can count on. Annuities are not investments at all, and it’s a mistake to make that comparison. Annuities are a pure contractually guaranteed transfer of risk.
In a lot of cases that I work on, many people have their lifetime income needs in place except for a specific period of time. For example, they know the pension amount they receive along with their Social Security payments. However, there might be a 5 or 7 year income gap that needs to be filled for a specific dollar amount. That is where a “Period Certain” SPIA works perfectly and efficiently.
Income for you, or legacy for others
Another common place where Period Certain SPIAs work very well is for guaranteeing an income stream for a certain time but also providing a legacy stream of income as well.
With some carriers, you can purchase a Period Certain SPIA for as long as 40 year guarantee. Yes, that’s 40 years of guaranteed payments! For example, a 60 year old male could purchase a 40 year Period Certain SPIA knowing that he might not live to age 75 because of current health issues. If he places his children or grandchildren as beneficiaries of the SPIA policy, then they will receive any remaining payments when he passes away. If he died at age 70, then there would be 30 more years of guaranteed payments to the policy beneficiaries.
If he lives to age 80, there would be 20 years of continuing payments. If he lived 2 years and died in a car crash, then there would be 38 more years of guaranteed payments. Got it?
Small Business Cash Flow Protection
Another strategy for Period Certain SPIAs is using short term periods for cash management in states that protect annuities from predators and frivolous lawsuits.
A typical Period Certain only would be a 5 Year Period Certain, which means that the money would be paid back in full with interest over that 5 year time period. That kind of seems like running in place, but when you are trying to fully protect your assets….it works.
So remember that SPIAs are totally customized to contractually guarantee your specific goals. That might mean solving for a specific period of time instead of the typical lifetime structure.