What is generally a disadvantage of a single premium immediate annuity?

A single premium immediate annuity (SPIA) requires a significant upfront payment, which is a primary characteristic of this type of financial product. When an individual opts for an SPIA, they are essentially converting a lump sum of money into a stream of income that begins almost immediately. This means that the entire investment must be made at the outset, which can be a barrier for some individuals who may not have sufficient liquid assets available or who prefer to maintain flexibility in their finances.

The upfront nature of the payment limits access to these funds, making it less versatile compared to products that allow for additional contributions or withdrawals. Furthermore, once the payment is made, the holder typically cannot add more funds, which may hinder long-term financial planning or adaptability to changing circumstances. Overall, while SPIAs provide guaranteed income, the requirement of a significant upfront payment poses a disadvantage for many potential investors seeking more flexible financial products.