Social Security and Annuities: SPIA, QLAC, and the Income Floor Decision

Social Security is already an annuity — arguably the best one available. It pays for life, adjusts for inflation via annual COLA, carries zero counterparty risk, and includes a survivor benefit that protects your spouse. When you delay claiming from 62 to 70, you are effectively purchasing a larger annuity at a deeply subsidized rate: each year of delay adds 6–8% more monthly income, guaranteed for life.

Commercial income annuities — specifically single premium immediate annuities (SPIAs) and qualified longevity annuity contracts (QLACs) — don't compete with Social Security. They complement it. Used strategically, they can bridge the gap to a delayed SS claim, reduce your future required minimum distributions, and insure against the risk of living deep into your 80s and 90s.

How Social Security compares to a commercial annuity

The most useful comparison is what you'd pay on the open market to buy the income Social Security provides. A 70-year-old with a $3,500/month SS benefit owns the equivalent of roughly a $750,000–$900,000 inflation-indexed joint-life annuity. That's the floor you've already built.

The SPIA as a bridge to delay Social Security

The most common use of a SPIA alongside Social Security is as a bridge. The problem: you want to delay SS to 70, but you need income starting now. The typical solution is to draw down investment accounts to bridge the 5–8 year gap. An alternative is to use a portion of your portfolio to purchase a SPIA at 62–65, locking in guaranteed bridge income regardless of what markets do in those years.

A 63-year-old who buys a 7-year period-certain SPIA for $200,000 might receive approximately $2,500–$2,900/month for 7 years (rates vary by insurer; get multiple quotes). That bridges to SS at 70 while keeping the rest of the portfolio invested. The key tradeoff: the SPIA is irrevocable — if you die early, the insurer keeps the premium unless you bought a refund or period-certain feature.

When a SPIA bridge makes more sense than portfolio drawdown:

• You want to lock in a guaranteed income floor regardless of sequence-of-returns risk in early retirement.
• You have a large enough portfolio that losing the SPIA premium to early death is acceptable.
• You don't expect to need the principal for large unexpected expenses.

For detailed break-even math between claiming SS now vs delaying and drawing down a portfolio, see our Social Security bridge strategy calculator.

The QLAC: longevity insurance that also reduces RMDs

A Qualified Longevity Annuity Contract (QLAC) is a deferred income annuity purchased from an IRA or 401(k). You pay a premium now; the insurer begins paying a monthly income at a future date you choose — typically age 80, 82, or 85. The QLAC start date can be as late as age 85.¹

Two reasons a QLAC is distinctive:

1. Longevity insurance. A QLAC paying $2,000/month starting at 85 creates a guaranteed floor if you live into your late 80s and 90s — precisely when portfolio assets may be depleted. Combined with SS at 70, you have two guaranteed income floors separated by 15 years.
2. RMD reduction. SECURE 2.0 (P.L. 117-328) established that QLAC premiums are excluded from your account balance when calculating required minimum distributions.² If you put $200,000 into a QLAC from a $600,000 IRA, only $400,000 is used to compute your RMD — significantly reducing mandatory distributions and their tax drag on Social Security.

2026 QLAC limits

SECURE 2.0 (§ 202) eliminated the old 25%-of-account-balance cap and set a flat dollar limit, indexed for inflation. For 2026:³

QLAC calculator: RMD impact and maximum contribution

Enter your IRA/401(k) balance and birth year to see your maximum QLAC contribution, your projected first RMD with and without the QLAC, and the annual difference.

The combination strategy: SS at 70 + QLAC at 85

For people with substantial IRA balances who are concerned about longevity, the combination of delaying Social Security to 70 and funding a QLAC creates two guaranteed income floors separated by 15 years.

Example: A couple, ages 62 and 59, with a $700,000 traditional IRA and a $2,500/month SS PIA for the higher earner. They fund a $200,000 QLAC from the IRA, deferred to age 85. They delay SS to 70. The plan:

• Ages 62–69: Draw portfolio for living expenses (now $500K in IRA after QLAC, reducing RMDs starting at 75).
• Age 70: SS starts at $3,100/month (124% of PIA — 8% delayed retirement credits × 3 years).
• Ages 70–84: SS + smaller portfolio withdrawals, lower RMDs because of QLAC exclusion.
• Age 85: QLAC begins. The couple now has SS + QLAC as their guaranteed income floor, no matter how long they live.

The QLAC income amount at 85 depends on insurer pricing at time of purchase — current QLAC payouts for a $200,000 premium deferred to 85 can range widely. Get quotes from multiple insurers, comparing single-life vs joint-life options.

When a commercial annuity beats delaying SS

SS delay (62→70) is the right default for most people with average or above-average health and a spouse to protect. But there are cases where a commercial annuity — even at commercial rates — is a better fit:

Tax treatment: annuities vs Social Security

The tax treatment differs significantly depending on how you fund the annuity:

• IRA/401(k)-funded QLAC or SPIA: 100% of payments are taxable as ordinary income (no exclusion ratio — your basis in a pre-tax IRA is zero). These payments also count as provisional income under IRC §86, increasing the taxable portion of your SS.
• After-tax (brokerage) SPIA: Payments include a partial exclusion ratio under IRC §72 — the return of your own after-tax cost basis is not taxed. Only the earnings portion is ordinary income. After-tax annuity income also counts as provisional income for SS tax purposes.

The provisional income interaction between annuity payments and SS taxation is one reason this decision is complex enough to warrant professional analysis. Getting the sequencing wrong can result in paying federal income tax on a larger share of SS than necessary.

Five questions an advisor will ask you

1. What is your health status and family longevity history? (Drives the break-even analysis.)
2. Do you have a spouse or domestic partner who depends on your SS survivor benefit? (Changes the delay math significantly.)
3. What is the size of your traditional IRA/401(k)? (Determines whether QLAC RMD reduction is material.)
4. Do you need guaranteed income before 70, or can you bridge from portfolio assets? (Determines SPIA fit.)
5. What is your marginal tax rate now vs at retirement? (Affects whether annuity distributions are tax-efficient.)