When planning for retirement, a key concern is creating reliable income that covers your living expenses and supports the lifestyle you want. Annuities are a common solution, as they can offer steady payments and come in a variety of structures, including fixed, variable, immediate, and deferred, to suit your goals. 

For those approaching or already in retirement, immediate annuities can be an attractive option. Unlike deferred annuities, which accumulate value before paying out, immediate annuities begin making payments within 12 months of purchase. A flexible premium immediate annuity (FPIA) takes this a step further, allowing you to make multiple premium contributions over time while still gaining access to income quickly. 

This guide breaks down how these annuities work, how they compare to other types, and what to consider when contributing to one.

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What is a flexible premium immediate annuity?

An FPIA combines two key features: the quick start of an immediate annuity and the funding flexibility of a deferred annuity. With FPIAs, you can begin receiving income payouts within a year of your initial contribution, while also making multiple premium contributions before income begins. This differs from traditional immediate annuities, which typically require a single lump-sum payment. 

Payment structures vary by contract and provider, but most FPIAs offer guaranteed income, giving retirees a predictable cash flow regardless of market fluctuations. Because annuity guarantees depend on the issuing insurer, it’s essential to evaluate the financial strength and claims-paying history of any provider you’re considering. Gainbridge, for example, is a well-capitalized company that can help simplify annuity contributions, including flexible payment annuities.

What is a flexible premium deferred annuity?

Also called flexible installment deferred annuities, flexible premium deferred annuities (FPDAs) are insurance contracts that you fund over time. In contrast to FPIAs, FPDAs delay income payments until a future date, often during retirement. This longer accumulation period typically lets your contributions grow tax-deferred, helping increase the value of your annuity. Earnings are tied to either fixed interest rates or market performance, depending on the contract.

The key difference lies in the timing. FPIA payments start within the first year after your initial contribution, while FPDAs postpone payouts for years or even decades. Deciding between the two comes down to how soon you need income. 

Similar to an FPDA, a single premium deferred annuity (SPDA) is another option that also allows more time for growth. They do, however, require a one-time, lump sum payment, whereas an FPDA offers the flexibility to make multiple contributions. Investors with a large pool of capital to invest may prefer a SPDA, while those seeking a gradual funding approach may find an FPDA a better fit. 

Flexible premium immediate annuity pros and cons

While FPIAs can provide a reliable income stream on a short timeline, they also require careful consideration of your liquidity needs and retirement goals. Here are the main benefits and limitations.

Pros

• Simplicity: Once funded, FPIAs offer a straightforward payout structure that begins within the first year, providing fast access to steady income. 
• Opportunity to build principal: By allowing multiple contributions before payouts begin, you can increase the value of your annuity in a relatively short period. 
• Guaranteed start date: Payments begin within a year of your first contribution, offering certainty for covering expenses and supporting lifestyle goals. 

Cons

• Requires significant upfront capital: Even with contributions spread out over a year, FPIAs can still need substantial upfront funding, which may be difficult for some investors.
• Limited flexibility once payments start: Once the payout phase begins, adjusting the terms of your contract typically triggers surrender charges or tax penalties, offering little adaptability if your financial needs change. 

Choosing the right annuity premium option

Whether you choose an FPIA, FPDA, or SPDA depends on your unique financial situation. Here are a few tips to help guide your decision. 

Assess cash-flow needs 

First, decide whether you need income right away or you have a longer time horizon. For those who need fast access to cash to help cover living expenses, the immediate payout offered by FPIAs could be a good match. Younger investors who have time to accumulate and benefit from tax-deferred growth may find an FPDA or SPDA more appropriate. 

Consider available capital

Think about whether you’re able to make a large, lump-sum payment to fund an annuity. This may involve using savings, inheritance, or a retirement account rollover. If you have the available capital, an SPDA can help maximize growth. If you don’t have access to a large amount of funds or prefer gradual contributions, an FPIA or FPDA allows installed payments and can let you retain some liquidity. 

Factor in tax deferral and payout timing

Both FPDAs and DPDAs offer tax-deferred growth, which allows your savings to grow without tax penalties until withdrawals begin. FPIAs don’t provide tax-deferred growth, due to immediate payments. When funded with non-qualified money, a portion of each payment is tax-free, however, since it’s considered a return of your initial principal — only the growth portion is taxable. 

To make the most informed decision, consider exploring your options with Gainbridge, who can help you gain the confidence and knowledge needed to select an annuity option that’s right for you. 

Explore flexible premium immediate annuities with Gainbridge

Annuities can be a flexible and effective tool for providing guaranteed income in retirement. Gainbridge provides a range of annuity options tailored to your specific needs and goals, with no hidden fees or commissions. Our innovative digital platform and expert support makes purchasing an annuity straightforward and transparent.

To find out more about the options available and start your retirement journey, explore Gainbridge today.

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This article is intended for informational purposes only. It is not intended to provide, and should not be interpreted as, individualized investment, legal, or tax advice. For advice concerning your own situation please contact the appropriate professional. The GainbridgeⓇ digital platform provides informational and educational resources intended only for self-directed purposes.