Two ways to add a 'second pension' to your retirement

A Single Premium Immediate Annuity (SPIA) and a Guaranteed Lifetime Withdrawal Benefit (GLWB) rider attached to a deferred annuity can both produce a check for life. How they get there is fundamentally different.

A SPIA converts a lump sum into an income stream. Once the contract is issued, the lump sum is gone — you have a contractual right to payments per the structure you selected, and that's it.

A GLWB rider sits on top of a deferred annuity (usually an FIA, sometimes a MYGA). You keep an account value during the deferral years and during the income years. The rider promises a stated income for life regardless of what happens to the account value.

You pay a single premium. You select a payout structure: life-only, life with period certain (e.g., life with 10-year certain), joint-and-survivor, joint-and-survivor with period certain, period-certain only, or refund options (cash refund or installment refund).

Income payments begin within approximately 12 months of the premium being received — that is what makes it "immediate." Payments continue per the structure you selected: until you die (life-only), until both you and a joint annuitant die (joint-life), until a stated number of years has passed (period-certain), or some combination.

Once issued, a SPIA is generally irrevocable. A small number of carriers offer commutation (a one-time cash-out provision) on certain structures, but most do not. There is no account value to walk away with — the carrier has converted your premium into a contractual obligation.

The deferred annuity has an account value (your money plus credited interest, minus charges). The GLWB rider tracks a separate value called the benefit base, which is used only to calculate the guaranteed lifetime income amount.

During the deferral years, the benefit base typically grows at a contractual roll-up rate (a stated percentage per year for a stated number of years, or until income is turned on). The roll-up applies to the benefit base, not to the account value, and the benefit base is not a withdrawable amount.

When you turn on income, the carrier multiplies the benefit base by a payout factor based on your age (and joint annuitant's age, if applicable) at activation. That product is the guaranteed annual income for life.

The carrier first pays that income out of your account value. If markets and crediting cooperate, you may have account value left when you die. If account value reaches zero, the rider continues paying the same guaranteed income for as long as you live (or both lives, if joint).

A SPIA has no ongoing rider charge. The carrier has priced the lifetime guarantee into the payout factor itself.

A GLWB rider carries an explicit annual charge — disclosed in the contract — typically deducted from the account value. The charge continues whether or not you have turned on income, and it reduces account-value growth over time.

On a per-dollar-of-income basis, a SPIA usually pays more at the same age and date than a GLWB on the same starting premium. The trade-off is irreversibility.

A SPIA generally has no remaining account value beyond the structure you selected. A life-only payout pays nothing at death. A period-certain or refund option will continue payments to a beneficiary or pay a lump sum, but that protection is priced into the payout — it shows up as a smaller monthly check.

A GLWB preserves the account value for liquidity during life (subject to any surrender charges still in effect) and for a death benefit equal to whatever account value remains. If markets are strong and withdrawals are modest, account value can persist for decades.

Most SPIA payouts are level — the same dollar check every month. Some carriers offer a Cost of Living Adjustment rider that increases the payment by a stated percentage each year. The inflation rider lowers the starting payment in exchange for the increase.

GLWB income is typically level once turned on, although a few carriers offer riders that step up income if account value crosses thresholds. Neither product is a true inflation hedge in the way that I-bonds or TIPS attempt to be.

A non-qualified SPIA uses an exclusion ratio: each payment is treated as part return of basis (tax-free) and part interest (taxable as ordinary income), in proportions calculated from the IRS general annuitization rules in IRC §72(b). Once your full basis has been recovered, subsequent payments are fully taxable.

A GLWB withdrawal from a non-qualified contract is taxed under the standard LIFO rules of IRC §72: gain comes out first and is fully taxable, basis comes out tax-free only after the gain is exhausted. This is generally less tax-efficient in the early years than a SPIA's exclusion-ratio treatment.

Inside a Traditional IRA, payments from either structure are generally fully taxable as ordinary income. Inside a Roth IRA, qualified payments are generally tax-free.

If the goal is the highest possible guaranteed income per premium dollar, a SPIA usually wins, with the cost being irreversibility.

If the goal is guaranteed lifetime income with the option to keep some control, leave a death benefit, or change your mind before turning income on, a GLWB rider is the structure built for that.

Both are subject to the carrier's claims-paying ability. With either structure, the carrier you choose matters as much as the math.