Single Premium Annuity Rates Explained

If you have liquidated an individual retirement account, received either a large bonus or a considerable severance package, or in any other way come into possession of a large lump-sum, consider investing it in a single premium annuity. By far the best way to secure a large sum of money, a single premium annuity safeguards principal and assures its steady growth as it provides steady income.

As you determine which single premium annuity best meets your investment goals, work with a trustworthy financial advisor. Your advisor will demonstrate how to understand the complex vocabulary of annuities and discuss the pros and cons of different kinds of single premium annuities. Although all annuities provide a means of extending your wealth and retirement income, they vary dramatically according to how your money grows, how it comes back to you, and how much risk you assume.

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Immediate and Term Single Premium Annuity Rates

A fairly simple business principle drives single premium annuity rates: the longer the insurance company can hold your money before it must begin repaying you, the more interest it will deliver.

Consequently, in choosing a single premium annuity, you will first want to decide whether you need your annuity to begin paying regular monthly income right away, or whether you can afford to defer payments in exchange for higher interest or higher monthly income. Deferred payments are always recommended as they allow you to earn income on otherwise taxable income, but for retirees, immediate payments are perfectly acceptable. An “immediate” single premium annuity issues the first check thirty days after you consummate the purchase, and it will continue sending checks as long as you determine it should – either for a fixed period or for a lifetime.

Considered strictly in terms of how large your monthly check will be, deferring payments until age 75 or even 80 will put the largest amount in each month’s envelope. With that arrangement, though, you risk beginning the payments too late to benefit during the early stages of your retirement, and you raise the risk that you will out-live the term of your payments. On the other hand, you can begin payments right away and set them up to continue for your lifetime. This provides secure income that you can use to enjoy your retirement immediately, but forfeits some interest and lessens each month’s payment.

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Purchasing an annuity is a big decision. Online research is a good start, but prudent investors should discuss all their options and risks with an independent financial advisor. Request a free, no-obligation consultation today, along with a report of current rates on brand-name annuities.

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Single Premium Annuity Types

There are 3 basic single premium annuity types: fixed, variable, and indexed. Each of these can disburse payments in two ways: lifetime or term. Of these the most popular single premium annuity type is fixed, term.

Fixed Single Premium Annuity — Invest a lump sum and the insurance company guarantees a moderate rate of return and regular payment. Rates on these are lowest, but the investment is the safest.

Variable Single Premium Annuity — Invest a lump sum and the insurance company pays interest according to the rate of return on your portfolio choices. You risk losing money, but gain considerably higher earnings potential.  If you do not need immediate income, these annuities will yield the best return.

Index Single Premium Annuity — Invest a lump sum in a market index like the S&P 500 and the insurance company takes a portion of the profits in return for security against down years. Index annuities offer a low minimum rate and the potential for strong, variable growths. These annuities generally yield lower returns than variable, but higher returns than fixed.

Lifetime Single Premium Annuity — Secures your income for life. You may end-up collecting more than the sum of your principal and interest. Interest rates are lower than for other annuities because the insurance company expects to pay you more money for a longer period of time.

Term Single Premium Annuity — Offers higher interest rates because it limits the duration during which you collect your payments. The longer you can defer the start of your payments, the higher your rates will be.

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