SPIA vs GLWB

This one is all about the options you have if you want to maximize income within the first year of buying an annuity.  Most agents will only show you one without the other because they don’t know there might be another option or just don’t want to do the work.  Naivete leads to less than optimal results in far too many cases.  Sure it’s easy to compare the amount of income you receive but there are other benefits that need to be measured as well.  The Single Premium Immediate Annuity and the Guaranteed Lifetime Withdrawal Benefit share unique differences that you can analyze to find the best combination of benefits for your situation.

I’ve already compared DIAs (Deferred Income Annuities) to GLWBs and that’s essentially the same thing as a SPIA.  For all intents and purposes the rules apply to both so SPIAs and DIAs can be evaluated the same way.  I’ve got six differences on a list and will go through each of them.  If I missed anything let me know and I’ll include that or let you know why it’s not a material factor.  My new calculators are a nice tool to use but this will help you know how to use them effectively.

Amount of Income

This one is easy.  Which one pays more guaranteed income?  It can go either way and I told a story a few weeks ago about two couples.  One had only seen SPIAs but got more guaranteed income out of a GLWB and the other had only seen GLWBs but saved a lot of money by using a SPIA.  You have to look at both if maximum income is your goal and most times it’s very close so the other factors will come into play for that.

Income Start Date

When you buy a SPIA, part of the application requires you to select the income start date, which can be up to 12 months from now or a much longer period if using a DIA.  Once the contract is issued you can’t change that.  With a GLWB you don’t elect income until you want to start receiving it.  The longer you defer, the more it pays and people change their mind all the time.  In the past year I’ve had two different people buy a SPIA and request a change in the payment start date but the company won’t do it.  For more flexibility a GLWB will give you what you want without hassle.

Accumulation Value

When you buy a SPIA, you trade the premium amount for a legal contract that guarantees monthly payments.  There is no cash value and I frequently have owners question this after a contract is issued, even though we cover it ahead of time.  It’s just something people aren’t used to.  GLWBs are a rider that is added to a variable or fixed indexed annuity so there is a cash value and an account that can be managed.  Payments reduce the cash value, eventually to zero, but people like the idea of maintaining an asset for a period of time.

Required Minimum Distributions

Nobody likes ‘em but everyone with an IRA will be subject to it.  Required minimum distributions are due and each of these income options will affect your RMDs differently.  When you use an IRA to buy a SPIA, the payment becomes the set distribution for that amount of money, even though the payout is higher than what is required.  If you have other IRA money you will have to draw an additional distribution from that account.  A GLWB on the other hand has a cash value and the payments will also exceed what is required but the higher payments can be used to offset what needs to be withdrawn from other accounts.

Insurance Company Strength

Plenty of people have been disregarding this while seeking the highest payments but I think it’s one of the most important things.  Fortunately for SPIAs, the best payouts come from the strongest companies in the market.  With GLWBs there are a lot of what I call substandard carriers that compete aggressively for your retirement money.  A SPIA will always come from a AA+ or higher company but for GLWBs I recommend no rating lower than a standard A.

Legacy

This is certainly up for some debate but I can prove that my opinion is correct.  SPIAs come with a better GUARANTEED legacy if that’s what you choose.  You can add any type of term guarantee to a SPIA and there are many favorable options that don’t affect the payout much.  GLWBs have a cash value and that’s the only legacy available.  Since it comes as a rider to a contract there is a fee for the benefit and growth is not guaranteed.  In a scenario with low growth combined with fees and account reductions for income payments, there’s a chance you don’t recoup all your money if you die at the wrong time.  Now, if there’s good performance in the underlying account  then you’ll do just fine but it’s not guaranteed.

I’d say about 90% of the time people only consider maximizing the income payment.  When you make an appointment with me I have no way of knowing which is the best option.  Until I understand how you feel about all the other factors I can’t make a recommendation.  Use this as a list to see where your priorities are and realize that there are a lot of advisors that won’t show you both sides of this.  You may be leaving money on the table or moving forward without a key benefit that’s important to you.  This website keeps all of us honest so feel free to hold me to this as well.

Have a great weekend!

Bryan

Watch Episode #181: SPIA vs GLWB

Last Updated on June 6, 2025 by Bryan Anderson