Definition (in Bruce's words) Also see Investopedia Link
- Buy an SPIA with single or joint guaranteed lifetime income for one payment of a lump sum.
- The income is guaranteed lifetime(s.)
- The capital / premium payment goes to the annuity issuer.
- Once implemented, the transaction cannot be reversed.
- If the annuitant / both joint annuitants die, e.g. before 10 years, an available choice is the longest of both lives or e.g. 10 years.
- So the heirs/beneficiaries could receive the balance of payments if less than e.g. 10 years of payments were received.
Disadvantages including one GLARING
- The capital aka Premium Payment is given up in return for the guaranteed income.
- So there is no further access to that capital once implemented.
- No flexibility once purchased. Irrevocable. No "do-over."
- So SPIA might be suitable for some but not all of your capital
- Potentially higher income than other choices
- And guaranteed. Other choices are not always guaranteed.
- Guaranteed joint or single lifetime income you can't outlive
- Once purchased, no moving parts so no ongoing management fee needed
- Potential Medicaid benefit. (See elsewhere.)
- After the 1st spouse dies, if SPIA was purchased as Joint Guaranteed Lifetime, the guaranteed income continues to surviving spouse as long as s/he lives.
Possible Medicaid Considerations for Married Couples (also see elsewhere)
Medicaid rules can change and vary by geography
- Medicaid typically will not pay until you have "spent down" assets.
a) Not counting primary residence, which currently is not required to be sold by a spouse.
b) Non-spouse might be different
- Social Security, Pension and SPIA Income Annuity payments are not assets.
- Each spouse's Social Security is separate.
a) At death of first spouse, surviving spouse receives one Social Security payment.
b) The larger of what either spouse was getting.
c) NOT both payments as before.
- Pensions vary.
a) Check with your provider.
b) Some pensions might continue 100%.
c) Or a smaller percentage eg 50% or 75%.
d) Or not at all.
- A joint lifetime income annuity (SPIA) established with 100% payout to surviving spouse will continue to the surviving spouse with no reduction.
- Other assets that have been generating either income or withdrawals but have capital value might have to be spent down before the spouse needing care qualifies for Medicaid.
- Medicare pays "not zero" but a very small amount of Long Term Care expenses.
Possible Estate Planning Advantage to leave a Legacy to children / grandchildren
- If you are old enough you might get a substantial raise in your ongoing income with an SPIA
- If you are otherwise solid financially ...
- And wish your children / grandchildren to receive a legacy
- You potentially could establish an Irrevocable Trust
- You could gift some extra cash to the trust
- The trust might make investments that have growth potential
- Or the trust might make income investments with income staying in the trust to grow the trust corpus
- Or if healthy enough the trust could purchase some life insurance that would pay to heirs at death of grantor(s.)
- Or some combination of the above.
- Coordinate with legal, tax and financial folks who are familiar with your complete situation and Medicaid rules in your geography.
Annuities are insurance contracts that, depending on the contract, may offer a guaranteed annual interest rate and some participation growth, if any, of a stock market index. Such contracts have substantial variation in terms, costs of guarantees and features and may cap participation or returns in significant ways. Any guarantees offered are backed by the financial strength of the insurance company, not an outside entity. Investors are cautioned to carefully review an annuity for its features, costs, risks and how they are calculated.
For a comprehensive review of your personal situation, always consult with a tax or legal advisor. Neither Cetera Advisors LLC nor any of its representatives may give legal or tax advice.