How the payout is calculated
An income annuity for a fixed period works like a mortgage in reverse. The insurer holds your lump sum, credits interest, and pays you a level amount so the balance hits zero at the last payment. The formula is payment = premium × r ÷ (1 − (1 + r)−n), where r is the yearly rate and n is the number of years.
A lifetime annuity replaces "n years" with how long the insurer expects its buyers to live. Because it pools buyers, those who live longest are paid partly by those who die early. That is why lifetime payout rates at 70 are higher than at 60.
Annuity or the 4% rule?
An annuity at 6–7% pays more per dollar than a 4% withdrawal rate and can't run out, but you give up the money and, usually, inflation protection. Compare it with keeping the money invested in the withdrawal calculator.
Questions people ask
How much does a $100,000 annuity pay per month?
It depends on your age, interest rates and the payout type. As a rough guide, a single-premium immediate annuity bought at 65 has recently paid around 6% to 7.5% a year for life, or about $500 to $625 a month per $100,000. Get real quotes, because insurers price differently.
What is the difference between a period-certain and a lifetime annuity?
A period-certain annuity pays for a fixed number of years, like a loan in reverse, and this calculator works it out exactly. A lifetime annuity pays as long as you live, so it also uses the insurer's mortality pricing. Payout rates for life are higher than the interest rate alone because payments to people who die early help fund those who live long.
What is a fixed (deferred) annuity?
A fixed annuity is like a CD from an insurance company: it grows at a set rate, tax-deferred, for a number of years. You can later annuitise it or withdraw it. Surrender charges usually apply to early withdrawals.
Are annuity payments taxed?
If bought with after-tax money, part of each payment is a tax-free return of your premium (the exclusion ratio) and the rest is taxed as income. If bought inside an IRA, the whole payment is taxable.
Is an annuity a good idea?
An immediate annuity can turn part of your savings into a guaranteed paycheck and protects against outliving your money. The trade-offs are giving up access to the money, inflation risk on fixed payments, and insurer risk. Many planners suggest covering essential expenses with Social Security, pensions and annuities combined.