How does a single-premium immediate annuity differ from a deferred annuity?

A SPIA begins payments immediately (within one period of purchase) after a lump-sum premium. A deferred annuity accumulates value during an accumulation phase before converting to an income stream at a future date, allowing for tax-deferred growth before payouts begin.

Is the income from a SPIA taxable?

Partially. Each payment consists of a return of principal (non-taxable) and interest income (taxable). The IRS uses an exclusion ratio to determine the non-taxable portion. Once cumulative returns of principal equal the original premium, all subsequent payments are fully taxable.

What happens to a SPIA if the annuitant dies early?

In a life-only SPIA with no period certain, payments stop at death and the insurer keeps the remaining balance. Adding a period-certain guarantee (e.g., 10 or 20 years) ensures payments continue to a beneficiary if the annuitant dies before the guarantee period expires, but reduces the monthly payment amount.

Immediate Annuity Payment Calculator

Calculate the fixed monthly (or annual) payment you will receive from a single-premium immediate annuity (SPIA) based on the lump-sum investment, interest rate, and payout period.

By AbraCalc Editorial Team · Reviewed by AbraCalc Methodology Review · Last reviewed: 2026-06-25

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How to use this tool

Enter lump-sum premium (pv), annual interest rate, payout period and payments per year in the fields above.
Results update instantly as you type — or click Calculate.
Read your periodic payment and the full breakdown beneath it.

⚠ This tool provides general estimates for education only and is not financial, tax or legal advice. Figures may not reflect your situation — verify with a qualified professional.

Formula

PMT = PV × r ÷ (1 − (1 + r)⁻ⁿ)

where r = periodic interest rate = Annual Rate ÷ Payments per Year, and n = total number of payments = Years × Payments per Year

How it works

An immediate annuity converts a lump-sum premium into a stream of level payments using the present-value-of-annuity formula. The periodic payment is determined so that the discounted sum of all future payments exactly equals the initial principal at the given interest rate. For monthly payments, the annual rate is divided by 12 to obtain the monthly rate, and the total number of payments is years multiplied by 12.

Worked example

$100,000 SPIA at 5% for 20 years, monthly payments

Principal (PV) = $100,000; Annual rate = 5%; Monthly rate r = 5%/12 = 0.41667%; n = 20 × 12 = 240 payments
PMT = $100,000 × 0.0041667 ÷ (1 − (1.0041667)⁻²⁴⁰)
(1.0041667)⁻²⁴⁰ = 0.36839; denominator = 1 − 0.36839 = 0.63161
PMT = $416.67 ÷ 0.63161 = $659.96 per month

Monthly payment is $659.96; total paid out over 20 years is $158,390.40.

Common mistakes to avoid

Confusing the periodic payment rate with the annual rate: if payments are monthly, the formula requires dividing the annual rate by 12 and using total months for n, not the annual rate and total years.
Assuming the calculator output equals a real annuity quote from an insurance company: actual SPIA payments depend on actuarial mortality tables, insurer profit margins, and optional riders (inflation protection, death benefit), making real quotes differ from pure time-value calculations.
Ignoring the effect of inflation on purchasing power: a fixed $1,500/month payment from a SPIA today may cover 30-40% fewer goods and services in 20 years if inflation averages 3% annually.

Key terms

What is a single-premium immediate annuity (SPIA)?: A SPIA is an insurance product where you pay a lump sum and immediately begin receiving fixed periodic payments for a set term or for life.
How does the payout period affect the payment amount?: A shorter payout period produces a higher periodic payment, while a longer payout period spreads the principal over more payments, reducing each payment.
What is the periodic interest rate?: The periodic rate is the annual interest rate divided by the number of payment periods per year (e.g., annual rate 6% divided by 12 = 0.5% monthly rate).
Does an immediate annuity guarantee income for life?: A life annuity version does, but a fixed-term annuity (modeled here) pays only for the specified number of years regardless of whether the annuitant is alive.

Frequently asked questions

How does a single-premium immediate annuity differ from a deferred annuity?: A SPIA begins payments immediately (within one period of purchase) after a lump-sum premium. A deferred annuity accumulates value during an accumulation phase before converting to an income stream at a future date, allowing for tax-deferred growth before payouts begin.
Is the income from a SPIA taxable?: Partially. Each payment consists of a return of principal (non-taxable) and interest income (taxable). The IRS uses an exclusion ratio to determine the non-taxable portion. Once cumulative returns of principal equal the original premium, all subsequent payments are fully taxable.
What happens to a SPIA if the annuitant dies early?: In a life-only SPIA with no period certain, payments stop at death and the insurer keeps the remaining balance. Adding a period-certain guarantee (e.g., 10 or 20 years) ensures payments continue to a beneficiary if the annuitant dies before the guarantee period expires, but reduces the monthly payment amount.