How Annuity Payout Rates Work
Annuity payout rates are expressed as monthly income per $100,000 of premium. In 2024, a 65-year-old male purchasing a life-only immediate annuity might receive approximately $595/month per $100,000 — $500,000 in premium buys roughly $2,975/month for life. Rates vary by age, gender (in states that allow it), interest rates at purchase time, and the insurance company.
Payout rates fluctuate significantly with interest rates — when the Fed raised rates aggressively in 2022–2023, annuity payouts became dramatically more attractive. A 65-year-old could receive $500–600/month per $100,000 compared to $430–480/month just two years earlier. Timing an annuity purchase relative to interest rates matters, though predicting rates is difficult.
The break-even calculation is essential: divide your premium by your annual annuity income to find how many years you need to live to recoup your investment. At $595/month ($7,140/year) on $100,000, break-even is 14.0 years — meaning you need to live past age 79 (if you purchased at 65) to 'come out ahead' compared to simply spending down the principal. If you live to 90, the annuity pays $179,400 on a $100,000 premium.
The annuity's real value isn't the raw dollar comparison — it's the elimination of longevity risk. You cannot outlive a lifetime annuity, no matter how long you live. For retirees without other guaranteed income floors (pension, Social Security), annuitizing a portion of savings to cover essential expenses is one of the most effective risk management strategies available.
Calculate Your Annuity Monthly Income
Enter your lump sum, age, and payout option to see estimated monthly income, break-even age, and comparison against the 4% rule alternative.
Calculate My Annuity IncomeHow to Evaluate Whether an Annuity Is Right for You
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Calculate your retirement income floor
List all guaranteed income sources: Social Security, pension, and any existing annuities. Compare to your essential monthly expenses (housing, food, healthcare, utilities). The gap between guaranteed income and essential expenses is the 'income floor gap' — the portion of retirement expenses that carry longevity risk if funded only from investments. Annuitizing enough to cover this gap is the core use case for immediate annuities.
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Determine your break-even age
Divide the annuity premium by annual income to get break-even years. Add to your purchase age to find break-even age. A 67-year-old purchasing a $200,000 annuity at $1,200/month ($14,400/year): break-even = $200,000 ÷ $14,400 = 13.9 years → break-even age 80.9. If you're in good health with family history of longevity, living past 81 is likely. If health is poor, the lump sum may serve you better as an inheritance.
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Compare payout options and their tradeoffs
Life-only maximizes monthly income but provides nothing to heirs. Joint-and-survivor protects a spouse but reduces your payment by 8–15%. Period-certain guarantees payments for a set period even if you die early, but reduces income slightly. For most married couples, some form of survivor benefit is appropriate unless the spouse has substantial independent income.
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Evaluate the annuity vs. 4% rule alternative
The '4% rule' suggests withdrawing 4% of a portfolio annually, adjusted for inflation, gives a high probability of lasting 30 years. On $200,000, that's $8,000/year ($667/month). If the same $200,000 annuity pays $1,200/month (life-only), the annuity wins on monthly income. But the annuity provides no inflation protection, no estate value, and no flexibility. A hybrid approach — annuitize for income floor, invest the rest — is often optimal.
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Consider timing: rates, health, and need
The best time to buy an annuity is when you actually need the income floor (at or near retirement), rates are favorable (higher is better), and you're in good-to-excellent health (you need to live past break-even to benefit). Buying too early sacrifices years of tax-deferred growth. Buying too late may mean you've already spent down assets you would have annuitized.
Annuity vs. 4% Rule: When Each Wins
Annuity Wins When
- ✓You have a significant income floor gap from SS + pension
- ✓You're in good health with family history of longevity
- ✓Current interest rates are high (better payout rates)
- ✓You want to eliminate market risk for essential expenses
- ✓You have no heirs or estate planning goals for this money
4% Rule / Investment Wins When
- ✗Your SS + pension already covers essential expenses
- ✗Health suggests shorter-than-average life expectancy
- ✗You want flexibility to adjust spending up or down
- ✗You have heirs who would benefit from remaining assets
- ✗Interest rates are low (poor annuity payout environment)
Annuity Questions
Can I change my mind after purchasing an annuity?
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Most immediate annuities are irrevocable — once you've annuitized, you cannot get your premium back as a lump sum. Some products have free-look periods (usually 10–30 days) during which you can cancel for a full refund. Deferred annuities (before annuitization) often have surrender periods during which early withdrawal triggers surrender charges, typically 7–10% declining over 7–10 years. Always understand the liquidity terms before purchasing.
Is annuity income taxable?
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If purchased with pre-tax money (IRA, 401k), all income is ordinary taxable income. If purchased with after-tax money (non-qualified), each payment is partially tax-free (return of your original premium) and partially taxable earnings. The exclusion ratio determines how much is tax-free. Your insurer will provide a 1099-R each year showing the taxable amount. Annuity income is not subject to self-employment tax.
What happens to my annuity if I die before the break-even?
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With a life-only annuity: payments stop, and any unpaid premium is not returned to your estate — this is the mortality credit that makes the annuity work. With a period-certain annuity: your estate or designated beneficiary continues receiving payments for the remaining guaranteed period. With a joint-and-survivor annuity: your spouse continues receiving 50%, 75%, or 100% of payments depending on the option selected.
Calculate Your Monthly Annuity Income
Monthly income estimates, break-even age, all payout options compared, and 4% rule alternative — see if an annuity makes sense for your retirement.
Calculate Annuity Income