Retire · 5 min read
Annuity types compared: SPIA, DIA, FIA and MYGA
What each main annuity type does, what it costs, what is guaranteed and when it fits, side by side and without the sales pitch.
Annuity types compared: SPIA, DIA, FIA and MYGA
What each main annuity type does, what it costs, what is guaranteed and when it fits, side by side and without the sales pitch.
Pillar: Retire · Reading time: 5 min
In plain words
An annuity is a contract with an insurance company. You give it money, either at once or over time, and it promises something back: income for life, income for a set period, or growth at a set or formula-based rate. The promises are backed by the insurer's claims-paying ability, not by a government agency, and state guaranty associations offer limited backstop protection that varies by state.
"Annuity" covers very different products, some simple, some complex. Here are the four you will hear about most.
The four types
SPIA: single premium immediate annuity
You pay a lump sum and income starts within a year, for life or for a set period. It is the purest form of longevity insurance. The cost is built into the payout rate. Once bought, the money is usually not accessible.
Fits: filling a gap in your income floor with income that lasts for life.
DIA: deferred income annuity
The same idea, but income starts later, often 5 to 20 years after you pay. Each dollar buys more future income than a SPIA. A qualifying longevity annuity contract (QLAC) is a DIA bought inside an IRA or 401(k) that, within limits under current U.S. federal law, can delay part of required minimum distributions.
Fits: insuring against a long life, for example income from age 80 or 85, while keeping the rest of savings flexible.
MYGA: multi-year guaranteed annuity
Think of it as an insurer's CD. You deposit a lump sum, and the insurer guarantees a fixed interest rate for a set term, often 3 to 10 years. Growth is tax-deferred until you withdraw. Most allow small yearly withdrawals, often up to 10%, without penalty. Taking more early triggers a surrender charge, and some contracts add a market value adjustment.
Fits: safe, predictable growth for money you will not need for the term, especially if you want tax deferral.
FIA: fixed indexed annuity
Your money earns interest linked to a market index, such as a large-company stock index, but you do not own the index. Credits are limited by caps, participation rates or spreads, and in a down year the credit is usually zero rather than a loss. Many FIAs offer an optional guaranteed lifetime withdrawal benefit rider, often for a yearly fee of about 1%, that promises an income level whatever the account value does. Surrender periods are often 7 to 10 years.
Fits: people who want protection from losses, some upside, and optionally a lifetime income guarantee, and who accept complexity and long surrender periods.
Side by side
| SPIA | DIA | MYGA | FIA | |
|---|---|---|---|---|
| Main job | Income now | Income later | Fixed growth | Protected growth, optional income rider |
| What is guaranteed | Payments | Future payments | Rate for the term | No loss of principal from index moves (fees and surrender charges aside) |
| Access to money | Very limited | Very limited | Limited during term | Limited during surrender period |
| Visible fees | None | None | None | Rider fees if added |
| Complexity | Low | Low | Low | High |
Things that matter for all four
- Insurer strength. Check financial strength ratings and spread large amounts across insurers.
- Inflation. Most payments and rates are level. Some SPIAs offer rising payments at a lower starting income.
- Taxes. Under current U.S. federal law, growth is tax-deferred and earnings are taxed as ordinary income when withdrawn, not at capital gains rates. Withdrawals before 59½ can face a 10% penalty.
- Death benefits. Pure life-only income stops at death. Refund or period-certain options protect heirs at a lower payout.
A worked example (illustrative)
Helen, 66, retired with $600,000. Social Security covers most of her essentials, but she is $1,000 a month short.
- SPIA: $180,000 buys about $1,000 a month for life with a cash refund feature, closing her floor gap.
- MYGA: $150,000 at a fixed 5-year rate of 4.5% grows to about $187,000, for a planned home renovation and a future car.
- DIA: $50,000 buys roughly $1,100 a month starting at 85, in case she lives long and needs care.
- The remaining $220,000 stays invested and liquid.
Helen chose no FIA; she preferred simple contracts. These numbers are illustrative only. They are not quotes, and real rates change daily.
Common mistakes
- Buying the product before the plan. Decide the job first: income, growth or protection.
- Putting most savings into one annuity. Keep liquid reserves and spread across insurers.
- Misreading FIA income riders. The "income base" is not cash you can withdraw; it only sets the income amount.
- Ignoring surrender periods. Match the term to when you might need the money.
FAQs
Are annuities a good investment?
They are insurance contracts, not investments in the usual sense. They trade some flexibility or upside for guarantees. Whether that trade is worth it depends on your income floor and goals.
Which annuity pays the most income?
For the same premium, a DIA with a later start usually pays the most per dollar, then a SPIA. FIA income riders vary widely, so compare the guaranteed income, not the advertised roll-up rate.
What happens if the insurer fails?
State guaranty associations provide limited protection, with limits that vary by state. That is why insurer ratings and spreading money matter.
Can I get my money back out?
SPIAs and DIAs usually cannot be cashed in. MYGAs and FIAs allow limited free withdrawals and charge surrender fees above that during the surrender period.
Related strategies
- The income floor: covering essentials for life — the plan an income annuity fits into.
- Sequence-of-returns risk in plain words — why guaranteed income steadies early retirement.
- Dividends and index credits: what's guaranteed and what isn't — how caps and participation rates work.
Next step
Take the Wealth Strategy Score at /score to see whether you have an income floor gap. To price an annuity for your age and state, you can get an illustrative quote at /quote.
Education only, not personal financial, tax, legal or insurance advice. VeraLife.ai is not a registered investment adviser, broker-dealer or insurance agency. All numbers are illustrative.