Why Nobody Pitches You a 5-Year SPIA (Even When It's the Cleanest Income Floor)

The product almost nobody talks about

A 5-year SPIA (Single Premium Immediate Annuity, 5-year period certain) is one of the simplest financial products in existence. You hand the insurance carrier a lump sum. The carrier hands you back a guaranteed monthly check for exactly 60 months. No investment risk. No market exposure. No surrender charges. No moving parts.

In the mid-2026 rate environment, a $300,000 5-year SPIA pays approximately $5,400/month for 60 months — total distributions of about $324,000, implying an effective interest rate of roughly 4.5%-5.0%. The exact number depends on carrier, state, and rate week, but the order of magnitude is consistent.

The math is unremarkable. The commercial reality is what's interesting: this product is almost never recommended by the people who could sell it to you. There is a specific structural reason, and it has nothing to do with whether it's the right product for your situation.

The commission gap

Insurance agents earn commission paid by the carrier, not by the client. Commission scales with two things: contract size and contract complexity. Here is the rough commission landscape in 2026:

Read that table again. On the same $300,000 of client money, an agent earns roughly $5,000 on a 5-year SPIA and $20,000+ on a 10-year FIA with income rider. That is a 4x commission gap on identical premium dollars.

Multiply that across a career. An agent who steers 30 clients per year toward the 10-year deferred FIA instead of the 5-year SPIA earns roughly $450,000 more per year. Across a 20-year career: nearly $9 million in commission difference, on the same client base.

Why the 5-year SPIA is mathematically the cleanest Social Security bridge

Delaying Social Security from your Full Retirement Age (currently 67 for most pre-retirees) to age 70 increases your monthly benefit by 8% per year of delay, plus delayed-retirement credits. From age 65 to 70, the total uplift is approximately 32% of your Full Retirement Age benefit, locked in for life and inflation-adjusted.

For a couple, with the higher earner deferring to 70 and the lower earner claiming at FRA, the lifetime value of that delay is typically $150,000-$300,000+ in present-value terms — and the higher-earner's deferral also locks in the larger survivor benefit if the higher earner dies first.

The problem: you need income from age 62-69 to live on while you wait. Most retirees solve this by either (a) claiming Social Security early at 62 or FRA (losing the 32% uplift permanently), or (b) withdrawing from their IRA at 4%+ per year through the most sequence-risk-exposed years of their retirement.

The 5-year SPIA solves it cleanly. You put $300,000-$500,000 into the SPIA at age 65. It pays you $5,400/month (on $300K) for 60 months. At age 70, you turn on the maximum Social Security benefit, and the SPIA's job is done — it disappears. Your IRA stayed untouched for those 5 years (or grew, depending on the market), and you locked in the 32% larger Social Security for the rest of your life.

Worked example

A 65-year-old single retiree, $1.2M Traditional IRA, $36,000/yr Full Retirement Age Social Security benefit at 67, expected $48,000/yr at 70. Living expenses: $80,000/yr.

Strategy A — Claim SS at 65, pull from IRA: $0 SPIA, claim SS at 65 (reduced 13.3% from FRA for early claim) = $31,200/yr. Pull $48,800/yr from IRA to cover remaining expenses. Pay tax on both. If 2026-2030 includes a sequence-of-returns drawdown, the IRA gets permanently impaired. Lifetime SS = $31,200/yr.

Strategy B — 5-Year SPIA bridge, defer SS to 70: $350,000 5-year SPIA at age 65 pays $6,300/mo = $75,600/yr for 5 years. Add small IRA withdrawal for the remaining ~$4,400/yr need. IRA stays at ~$850K, untouched through the red zone. At 70, claim SS at maximum $48,000/yr (52% higher than Strategy A's claim). Lifetime SS for 25 more years = ~$420,000 more in benefits, plus the surviving-spouse uplift if applicable. The IRA also grew untouched through the red zone, adding another $200K-$400K of buffer.

Net difference: Strategy B leaves the retiree with $500K-$700K more lifetime wealth than Strategy A, primarily because the 5-year SPIA enabled the SS deferral.

And yet: very few annuity agents will pitch this strategy. Because the SPIA in this case pays the agent $5,250 in commission instead of the $21,000+ they'd earn from selling the same client a 10-year deferred FIA on the same money.

Why your AUM advisor also won't pitch this

An AUM advisor charges 1% on managed assets. A $350,000 SPIA permanently leaves the managed account. That's $3,500/yr in lost advisor revenue, every year, for the rest of the relationship.

So even if your AUM advisor is technically allowed to recommend an annuity (some are dual-licensed, some refer to insurance specialists), the structural incentive is to keep the money under management. They will frequently suggest a "withdrawal strategy" from the IRA instead — which exposes you to sequence-of-returns risk during your worst years, but preserves their fee base.

The 5-year SPIA is one of the cleanest examples of a product that is simultaneously (a) right for the client and (b) wrong for both the agent's commission and the AUM advisor's fee. Two structural biases pointing in the same direction is why you've never heard the recommendation, even if you've been working with retirement professionals for years.

When the math actually works (and when it doesn't)

The "is a 5-year SPIA smart for me?" question really has three sub-questions: (1) where does the premium come from, (2) what tax bracket is it landing in, and (3) what RMD picture does it interact with? Here is the framework.

Scenario A — Pre-RMD years, sequence-risk red zone, NQ premium (the cleanest case)

You are age 62-72. You have non-qualified (after-tax) money sitting in a brokerage account earning whatever the market does. You want guaranteed income for the next 5 years to defer Social Security to 70 and protect the IRA from forced selling in years 1-5.

Use the NQ money for the 5-year SPIA. Why this is the cleanest case:

• SPIA income from NQ money is mostly tax-free for 5 years. Each monthly payment is part return-of-principal (non-taxable) and part interest (taxable). The exclusion ratio means the bulk of each payment is not added to your income — so your taxable income stays artificially low during the SPIA years.
• Your IRA stays untouched during the red zone — no forced selling in a down market, no sequence-risk impairment, no withdrawal pressure.
• Your taxable income is artificially low during the SPIA years, which means you have headroom to do Roth conversions at low brackets while the SPIA covers your spending. This is the double-win: the SPIA solves sequence risk AND creates room for tax-bracket arbitrage.
• You defer Social Security to 70 and lock in the 32% larger benefit for life plus survivor benefit.
• RMDs at 73+ are smaller than they would have been, because the IRA grew untouched but didn't get inflated by 5 years of forced market-only growth combined with no withdrawals.

This is the strategy that lights up on a spreadsheet. NQ money funds the SPIA, IRA stays intact, Roth conversions happen at the bottom of the bracket, Social Security defers to 70. Lifetime tax savings + sequence protection + larger SS check + smaller future RMDs.

Scenario B — Pre-RMD years, IRA premium (workable but with a tax spike)

You are age 62-72. You don't have meaningful NQ money — most of your wealth is in the IRA. You still want the income floor.

Funding the SPIA from the IRA is workable but requires care:

• The withdrawal from the IRA to fund the SPIA is fully taxable in the year of withdrawal. A $300K withdrawal in one year will push you into a much higher bracket (likely 24%+ federal plus state) for that one year.
• Alternative: a laddered SPIA approach. Withdraw $60K/yr from the IRA each year for 5 years and buy a successive 1-year period-certain SPIA each year — or simply use the $60K/yr directly as your income floor, no SPIA needed for 1-year periods.
• The SPIA payments from IRA money are 100% taxable — no exclusion ratio, because the IRA dollars never paid tax. So you don't get the favorable tax treatment of Scenario A.
• Voluntary IRA drawdown before age 73 still reduces future RMDs. Every dollar you pull out at 62-72 in lower brackets is a dollar that doesn't grow to a higher RMD at 73+. This is the same logic as Roth conversions, just without the Roth side benefit.

The math still works in many cases — sequence protection plus future-RMD reduction can be worth more than the tax spike — but the cleanest implementation is to spread the IRA-to-SPIA conversion over 3-5 years rather than doing it in one shot.

Scenario C — Post-RMD years (age 73+): usually NOT a fit

Once RMDs have started, the math changes. Buying a SPIA at age 73+ is usually not the right move because:

• RMDs are already forcing income out of the IRA. You already have a partial income floor from forced distributions. A SPIA on top of that is double income, often pushing you into higher brackets and into IRMAA territory.
• The Social Security bridge math is gone. If you're 73+, you've either already claimed SS or you're past the deferral window.
• Sequence-risk red zone is mostly over. By age 73, you've already lived through (or avoided) the early-retirement red zone. The remaining portfolio has either built a cushion or hasn't.
• Liquidity matters more in late retirement. Healthcare, LTC, family help — late-retirement spending is lumpy and unpredictable. Locking up principal in a 5-year SPIA at age 76 reduces flexibility precisely when you need it.

The exception: a Qualified Longevity Annuity Contract (QLAC) — a deferred annuity that delays RMDs on up to $200,000 of IRA money until age 85. This is a different product, with a different commission structure, and a different use case. Worth a separate conversation.

Scenario D — When a pension already covers essentials: usually NOT a fit

If you have a CalPERS, military, or similar pension covering 60%+ of your essential monthly expenses, plus Social Security, plus maybe a spouse's pension or SS — you may already have a sufficient income floor. Adding a 5-year SPIA on top of that locks up capital that could be more productively invested or used for liquidity.

The income-floor strategy is "cover essentials with guaranteed income, invest the rest for growth." If guaranteed income already covers essentials, the SPIA is redundant.

Scenario E — When the SPIA would be too concentrated: usually NOT a fit

A general rule: total annuity exposure (SPIAs + deferred annuities + MYGAs) shouldn't exceed 30-40% of total liquid retirement assets. Beyond that, you've sacrificed too much flexibility for income certainty.

For a retiree with $600K total liquid retirement assets, a $300K 5-year SPIA is 50% of the portfolio — too concentrated. A $150K SPIA covering a smaller portion of the income gap, combined with a CD ladder or bond bucket for the rest, is the more balanced approach.

The RMD interaction in plain English

This is the question Hans gets most often: "If I use IRA money to buy a SPIA, am I making my RMD problem worse or better?"

The answer: better, but watch the tax bracket in the year you do it.

Every dollar you pull out of the IRA before age 73 (whether to buy a SPIA, to fund a Roth conversion, or just to spend) is a dollar that does not grow inside the IRA to a higher mandatory distribution at 73+. The IRS forces you to start distributing your IRA at age 73 via Required Minimum Distributions. The RMD percentage starts at roughly 3.8% of the balance and increases each year. By age 80 it's 4.95%. By 85 it's 6.25%. By 90 it's 8.2%.

If your IRA grows untouched from $1.2M at age 62 to $1.8M at age 73, your first RMD is ~$68K. If you had drawn the IRA down to $900K by age 73 (via SPIA premiums, Roth conversions, or spending), your first RMD is ~$34K. Half the RMD = half the mandatory taxable income = potentially staying out of higher brackets, IRMAA cliffs, and the Social Security tax torpedo for the next 20 years.

The SPIA-from-IRA strategy is, in this sense, a form of voluntary pre-73 IRA drawdown that also happens to give you guaranteed income for 5 years. The structural problem is just the timing of the tax: the IRA-to-SPIA conversion in a single year creates a one-year tax spike. Spreading it over multiple years (laddered SPIAs, or just multi-year direct withdrawals + Roth conversions) avoids the spike.

The decision framework in one table

When a 5-year SPIA is NOT right

The product isn't universally appropriate. Skip it if:

• You have meaningful pension income already covering your expenses. If your pension + spousal pension + Social Security already covers your essential spending, you don't need an additional income floor.
• You're not deferring Social Security. If you've already claimed or plan to claim at FRA, the bridge isn't needed. Consider a longer-duration income product or just stay invested.
• Your IRA is too small to surrender $300K-$500K of liquidity. For retirees with $500K total assets, locking up 60% in a 5-year SPIA is too concentrated. Smaller SPIAs ($100K-$150K) can still work but the income they generate is smaller.
• You need access to the principal during the 5 years. SPIAs are illiquid by design. The principal is gone — you traded it for the income stream. If there's any chance you'll need a lump sum for a roof, a car, a medical event, that money should not be in a SPIA.
• You're under age 60. The Social Security bridge math only makes sense in the 62-70 window. Earlier than 62, you have other tools.

The MYGA alternative

If you want guaranteed income but also want your principal back at the end of the term, a 5-year MYGA (Multi-Year Guaranteed Annuity) is the alternative. It works like a CD: principal stays intact, earns a fixed interest rate, and at the end of the term you get the principal plus interest.

The tradeoff: MYGAs don't pay out income during the term. You can't use them as a Social Security bridge unless you also have other liquid income sources. They're better suited for the "stable money" portion of a portfolio that doesn't need to throw off income.

Current 5-year MYGA rates from A-rated carriers are running roughly 5.0%-5.6% guaranteed annually. Higher than most CDs, fully principal-protected, tax-deferred until withdrawal.

The disclosure

I (Hans Goldstein) am state-licensed to sell SPIAs, MYGAs, and other annuity products in California. If you choose to use one through me, I earn the commission disclosed in the table above — including the lower commission on a 5-year SPIA. The RLF educational work and this article are separate from any product sale. The 30-minute consult is free. No product is sold without your full informed consent and a clear demonstration that the product fits your specific income gap.

If, after the consult, the right answer is "don't buy anything from me," that's a real outcome. The fact that I'd earn $5,000 on the SPIA instead of $20,000 on the FIA is the reason most of the industry will steer you toward the FIA. Naming the bias is how you defend against it.