How much do fixed annuities pay?

The guaranteed interest rates for traditional deferred fixed annuities and MYGAs make these two types of annuities easy to understand when it comes to interest rates and the return these products can provide over the course of the contract term.

Variable, income, and fixed index annuities are more complicated. Because their returns are not calculated according to a guaranteed stated interest rate for a set period, consumers will not find rates for these products when searching for the best annuity rates.

Additionally, it’s important to note that fixed annuity and MYGA rates change daily. To keep you informed on the current fixed annuity rates, Annuity.org and its partner Senior Market Sales update the following tables every week.

Multi-year guaranteed annuities, or MYGAs, are a type of fixed annuity that guarantees a fixed interest rate for a specified time period — usually three to 10 years. Like traditional fixed annuities, MYGAs are subject to fees called surrender charges, which an annuity holder must pay if he or she withdraws money from an annuity before the specified time period is over.

Because MYGA rates change daily, Annuity.org and its partner Senior Market Sales update the following tables frequently. Therefore, it’s important to check back for the most recent information.

Annuity rates are tricky to compare because traditional fixed annuities guarantee an interest rate for a one-year term, whereas other fixed annuities guarantee rates for anywhere from three to 10 years. These multi-year term contracts are called multi-year guaranteed annuities (MYGAs).

Conversely, variable annuities don’t guarantee interest rates because their earnings depend upon the performance of an underlying stock portfolio.

And yet another type of annuity, the fixed index annuity, employs unique crediting methods based on the performance of a stock market index.

This can be perplexing to the average consumer. It helps to understand that annuities fall into specific buckets.

In addition, many annuities have pricing levers — interest rate floors, caps and participation rates — that affect their growth potential.

The interest rates for indexed and variable annuities fluctuate with the stock market. Therefore, people who purchase one of these annuity types must review either the variable annuity prospectus or the strategy options and rate sheet for the specific indexed product they are buying.

Income annuities (FIAs and DIAs) are typically quoted using either the monthly income payment amount or an annual payout rate that represents the percentage of the premium amount that the annuitant has received in income payments.

This leaves deferred fixed annuities and MYGAs, which — as we’ve established — are the least complex products. Their guaranteed interest rates make them easy to understand when it comes to interest rates and the return they can provide over the course of the contract term.

Fixed annuity rate quotes are useful when choosing among annuities offered by different carriers.

Fixed annuity rates are set by the providers — typically insurance companies — that issue the contracts. AM Best, a nationally recognized statistical rating organization (NRSRO), rates insurance companies based on their ability to pay their financial obligations. The AM Best rating is not a recommendation of a particular annuity product but an assessment of the insurance company’s financial strength.

“Consumers should determine how much they would like to invest in an annuity, then shop around to various highly rated insurance companies (look for at least an A- rating) to see what their rates are, and do comparison shopping, like you would when you buy a car,” Certified Financial Planner™ professional Rubina Hossain told Annuity.org.

Many carriers offer penalty-free withdrawal provisions that allow the annuity holder to make partial withdrawals before the surrender period ends without incurring fees. For example, some contracts allow annuity holders to withdraw up to 10%, starting in the first year.

Contracts with less generous withdrawal provisions may have higher rates. If you want the possibility of higher rates than fixed annuities offer and are willing to take on more risk, you could explore fixed indexed or variable annuities.

Insurance companies that sell annuities determine how they set growth rates for fixed annuities. The details are spelled out in annuity contracts.

The company will usually provide a guaranteed minimum rate for a set time period, usually three to 10 years, depending on the contract.

Rate setting can vary slightly from carrier to carrier, according to Jon Summers, senior marketing consultant with Senior Market Sales. Summers told Annuity.org that, generally speaking, the carrier takes a consumer’s premium and lumps it in with all of the premiums received.

“They then turn around and buy a basket of bonds and use that guaranteed return to either offer a rate to the consumer or buy options to provide upside potential on an index like an FIA (fixed index annuity),” Summers said. “That is why you see some modifiers like caps, spreads, participation rates, etc. This comes from the pricing options the carrier is able to offer their policy holders.”

Annuities are not investment products. They are insurance contracts with tax benefits.

While they require you to lock up your money in exchange for a fixed income throughout life, they are a relatively safe financial product with low risk.

For example, fixed annuities aren’t vulnerable to stock-market risks, so consumers who purchase fixed annuities don’t have to worry about market volatility.

Plus, the rates for annuities continue to significantly outpace the interest rates provided by banks for other accounts, including saving accounts and certificates of deposit, or CDs.

Consumers who want their money in a safe place, she added, “can see that the potential for gains with indexed annuities is uber-competitive with other fixed money instruments today. Heck — even fixed annuities are considerably more competitive than other ‘safe money’ alternatives.”

Moore’s advice to financial service providers regarding annuities: “We all should probably keep that arrow in our quivers.”

Professor of retirement income Wade Pfau told Annuity.org that MYGAs are “the annuity equivalent of CDs but provide tax deferral.” Unlike certificates of deposit, annuities grow tax deferred, meaning you don’t pay taxes until the money is withdrawn.

The other main difference between fixed annuities and CDs is that traditional fixed annuities and MYGAs are not insured by the Federal Deposit Insurance Corporation (FDIC). Instead, they’re backed by the life insurance companies that issue them and by state guaranty associations.

An annual payout rate is the percentage of the premium an annuity holder will receive each year as income.

The insurance company can quote you a price in terms of a payout rate or a monthly income dollar amount, but they are ultimately the same thing.

For example, if an insurer offers you a 5% payout rate for a $100,000 annuity, you will receive $5,000 a year or $416 a month.

Note that neither of these is the same as the return on the annuity, which insurance companies rarely reference when quoting annuity prices because the return often depends on how long the annuitant lives — an unknown variable in all cases.

What you need to understand about the return on an annuity is simply this: The longer you live, the greater the return on your annuity because with every payment, the difference between what you have received in income and what you paid in principal decreases, which means the return — expressed as a percentage — increases.

Using our example above, the return on a $100,000 annuity with a 5% payout rate will be approximately 2% after 25 years’ worth of payments. After 30 years, the return will be approximately 3%, and this will increase with every payment.

But how much does an annuity pay per month? That depends on the type of annuity you have, the payout duration and the principal investment.

An annuity is a contract between you and an insurance company. When you buy an annuity, the insurance company is required to make payments to you, either right away or at some specific point in the future. In exchange, you make premium payments, either as a lump sum or in installments.

Annuities themselves are either immediate or deferred:

According to Melody Evans, a wealth manager advisor with TIAA, annuities can be appealing because they provide periodic payments in retirement.

“Annuities provide certainty,” she says. “Fixed annuities can provide a known and stated crediting rate and annuity payouts provide a known and stated monthly payment.”

You also pay no taxes on the income and investment gains until you start taking withdrawals. In this way, annuities offer tax-deferred growth.

Before purchasing an annuity, you likely want to know how much you can expect in monthly payouts.

According to Misty Garza, a certified financial planner and vice president with Bogart Wealth, annuity payments vary based on several factors.

“Annuity payments are a function of the individual’s age, current mortality tables, current interest rates, and how much they are putting into the annuity,” she says.

Although there are three main types of annuities—variable, indexed and fixed—for demonstration purposes we’ve focused on calculating the monthly payouts offered by fixed annuities.

With a fixed annuity, the insurance company guarantees the payout will be the principal and a minimum rate of interest. As long as the insurance company you choose is financially stable, the money that you have in a fixed annuity will grow, and it will not drop in value.

To calculate your payouts, consider the following variables:

The formula to calculate your annuity payout is:

P = (d[1-(1 + r/k)-nk])/(r/k)

Assuming a $100,000 one-time contribution, a 4% interest rate and a 10-year payout period, here’s how to calculate your monthly payouts:

$100,000 = (d[1-(1 + 0.04/12)-10*12])/(0.04/12)

Using that formula, you can find your monthly payout with different terms:

If math is not your strong point, or if you’re simply looking for a faster method, you can use any number of online annuity payout calculators.

In general, experts recommend that annuities complement your retirement savings, but they shouldn’t make up your entire plan.

“Annuities have their place for certain individuals, but they are not meant for everyone,” Garza says. “I think it is important to understand one’s risk tolerance and comfort level with the market to determine whether or not they will be better off with an annuity for an income stream.”

When considering whether an annuity is right for you—and how large of one to purchase—keep in mind that annuities lock up your cash.

“The biggest [drawback] is no longer having a larger pot of money to draw from should you have a major expense come up,” Garza says. “Because of this, it is important to make sure you do not put all your money into the annuity.”

Unlike bank accounts, annuities aren’t insured by the government through the Federal Deposit Insurance Corporation (FDIC). As you consider your options and weigh the pros and cons of annuities, consulting with a financial advisor can help you create a plan that works for you.

The amount you collect from an annuity depends on when you invest, the return your specific annuity offers and the details of your particular contract. As a result, it’s difficult to provide a specific answer to what any single person should expect from this financial product. However, we can give some ballpark figures to help with your financial planning. You can currently expect as much as $6,000 per month (or more) with today’s rates on a $1,000,000 annuity. You may want to consult with a financial advisor to determine if an annuity is a good option for your retirement plan.

If you buy a $1 million annuity, you will receive monthly payments for a period of time. How much you receive, and for how long, depends entirely on the individual contract you buy, when you buy it and who you buy it from. For example, say you buy a lifetime annuity that will start to pay you at age 65. This annuity will pay you more per month if you buy it at age 40 than at age 60.

At the time of writing, annuities offered an average rate of return between 4.5% and 5.45%. This means that the annuity provider would add, for example, 4.5% compounded interest to your annuity every year starting when you bought it. Your annuity would continue to collect interest while you collect payments, and would end once you have received back the full value of the principal and the interest.

If you purchase your $1,000,000 annuity between the ages of 60 – 70 and start taking payments immediately then you can expect to receive between $4,500 and $6,500 per month for the rest of your life or for the time period of your annuity payout. That’s the best ballpark estimate you can receive without knowing the specific terms and riders in your contract.

Annuities are contracts that you make with a financial institution or an insurance company where you agree to purchase the contract and its terms in either a lump-sum payment or series of payments.

In exchange, you receive a series of payments made each month for a period of at least one year. While some annuities pay you for a fixed number of years, such as 10 or 20 years, others are what’s called a “lifetime annuity.” This is an annuity that pays you during retirement and continues paying each month for the rest of your life.

The idea here is similar to the interest payments you receive from a bank. The company that issues your annuity holds, uses and invests your money. In exchange, it gives you a rate of return and guaranteed payments.

For annuities that pay on a fixed term (instead of lifetime annuities), this is specifically structured like a loan. You receive back your full initial investment (the principal) plus the interest that accrues over the lifetime of the contract, typically compounded annually.

To get a better idea of how a specific annuity works, let’s look at an example of a $1 million annuity. Your annuity purchase would look like this:

In this case, you would buy the annuity for a single payment of $1 million. In exchange, the insurance company would start issuing you payments at age 65 and continue issuing payments each month for your lifetime.

Retail investors’ annuities are primarily retirement products, so most of them are structured to start repaying you at or around retirement age. Most people who use this product to save for retirement buy lifetime annuities since these provide guaranteed income throughout retirement.

Every annuity will offer rates of return that differ based on companies and their individual products. In particular, companies calculate lifetime annuities and fixed-term annuities very differently.  Lifetime annuities work differently because the company doesn’t know how long it will make payments, so the value of the annuity is based on interest rates and life expectancy.

There are several different types of annuities that vary based on when you pay for the annuity, when you receive payments or even who is making the payments on the annuity. Let’s take a look at the most common, or well-known, types of annuities:

Calculating the rate of return on a lifetime annuity is far more difficult since, again, these products are not built around a fixed period of time. It’s also important to note that, while many institutions advertise lifetime annuity interest rates as high as 10%, those high-interest accounts are usually what’s called an “income rider.”

With an income rider annuity, you receive the interest payments only. You don’t necessarily receive back the principal on the account. This functions more like a return on a traditional investment product rather than the debt-style structure of an annuity.

For example, you could buy a lifetime annuity for $1 million and begin collecting payments on it at age 65. If you buy that annuity at age 65 and begin collecting payments immediately, you might expect to receive around $4,700 per month for the rest of your life ($56,400 per year), which comes to a repayment rate of around 5% annually.

On the other hand, say you buy that same annuity at age 35. By purchasing the contract further in advance you will lock in a much higher rate of payment. In this case, you could find some institutions which offer you repayments as high as $23,000 per month ($276,000 per year).

The biggest problem with an annuity is that it locks up your money for a very long time. These products can offer financial security, given that they guarantee payments for the rest of your life (assuming that the insurance company doesn’t go out of business), but they tend to offer comparatively low returns relative to other investments.

For example, take our annuity purchased 30 years in advance. It would give you a $276,000 per year payout in retirement. Over 30 years, you would collect more than $8 million from this contract. On the other hand, the S&P 500 generates an average return of around 10.5%. If you took that same $1 million and put it in an S&P 500 index fund for 30 years, with a 10.5% annual return, you would have $19.9 million in the bank.

The annuity would have paid you $8 million by the time you turned 95. The S&P 500 index fund would have returned $19.9 million with which to start your retirement. Sometimes the guarantee isn’t always the right play, but the answer is always going to depend on your specific financial situation.

A fixed annuity is a two-part savings vehicle offered by insurance companies. In the first part, called the accumulation phase, the annuity pays a fixed rate of interest for a set period, much like a bank certificate of deposit. Currently, three-year fixed annuities pay up to 5.65 percent, according to Annuity.org, while 10-year fixed annuities pay up to 5.45 percent. Fixed annuities feature a minimum rate — typically 1 percent to 3 percent — that they will pay each year, even if interest rates fall below that level. Interest on your earnings is tax-deferred until you start taking withdrawals.

The second part of the fixed annuity is the distribution phase. Typically, you can have your entire amount paid out at once, over your lifetime or for a set period — say, 10 years. If you choose a lifetime payout, you’ll get the same amount each month no matter how long you live. In some forms of fixed annuities, however, the insurance company will get any leftover money if you die earlier than projected. You can also get annuities that will pay your beneficiaries after you die.

This calculation assumes you have a nonqualified annuity, which means you’ve already paid taxes on the money you invest, and the earnings are tax-deferred until you withdraw at retirement. Be aware that a fixed annuity is a contract between you and the insurance company, and each company’s annuity contract will be different. It’s important to read the contract and make sure that all its provisions are in line with your goals.

When you take distributions from a nonqualified fixed annuity, you’ll be taxed on the deferred earnings in each payment. For annuities with lifetime payouts, the payment contains part principal, which isn’t taxed, and part earnings, which are taxed. For those set to last a certain time — say, 10 years — the earnings and interest are paid first, and you pay taxes on those. The remaining principal payments are not taxed.

As with individual retirement accounts (IRAs), you pay a 10 percent penalty on any withdrawals you take before you reach age 59½. This is in addition to the income tax you pay on the taxable part of your withdrawals. If you have an annuity in an IRA, you’ll have to start taking required minimum distributions by April of the year after you turn 73. 

You may incur surrender fees if you take withdrawals during the surrender period, which is typically six to eight years after you purchase the annuity. The typical penalty is about 7 percent of the amount you withdraw, which declines each year to zero by the end of the surrender period. Many insurance companies will allow you withdraw up to 10 percent of your annuity without a surrender fee. Some annuities also waive surrender charges for people who live in nursing homes or have a terminal illness.

Your insurance agent may get a commission for selling you a fixed annuity. Commissions vary widely and are typically built into the cost of the annuity (and might not be spelled out in the contract). The commission on a 10-year fixed index annuity ranges from 6 percent to 8 percent, according to Annuity.org.

You may incur fees for riders — added provisions that tailor the annuity to your wishes. For example, you might want a rider to continue payouts to heirs for a set period after you die. Typically, the more riders you have, the lower your annuity payout.

Finally, fixed annuities may have administrative charges as well as mortality expenses, which compensate the insurance company if you die earlier than expected. Be sure to examine the annuity contract carefully for fees and ask your agent about anything you don’t understand.

Current average annuity rates fixed can expect between 3.60% and 5.25% ranging between 2 years and ten years in length. Use our fixed annuity calculator to solve your guaranteed rate of return.

When you need another stream of income for retirement, you might consider an annuity. You purchase the annuity from an insurance company and receive payments back at a later date. Before buying an annuity, it’s important to consider how much monthly income it might generate. For example, how much does a $300,000 annuity pay per month? And is it enough to live on in retirement? Some simple calculations can help you decide if an annuity is right for you.

A financial advisor can help you add different streams of income to your retirement plan.

What Is an Annuity?

An annuity is a financial arrangement in which you pay premiums to an insurance company, in exchange for payments made back to you at some future date. Some annuities are immediate, meaning there’s only a small gap between the time you pay the premiums and the time payments begin. For example, you might have an immediate annuity that begins making payments within 12 months.

Other annuities are deferred, meaning payments begin at a future date. For instance, you might purchase a deferred annuity at age 55 with the intention of beginning payments when you retire at age 65. You may receive one lump sum payment or monthly payments with either an immediate or deferred annuity.

Some annuities can grow in value over time since they earn interest, but the rate of growth can depend on how the money in an annuity is invested. A fixed annuity, for example, guarantees a specific rate of return based on current interest rates. A variable annuity, on the other hand, offers a rate of return that’s tied to an underlying investment or group of investments.

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How Much Does a $300,000 Annuity Pay Per Month?

How much a $300,000 annuity pays per month largely depends on when you purchase the annuity, how annuity funds are invested and how much time it has to grow. Using an annuity calculator can help you estimate how much money a $300,000 annuity (or an annuity in any other amount) may generate in monthly income.

Say that you’re 43 years old now. You purchase a $300,000 deferred annuity today with the intention of beginning withdrawals at age 65. Your annuity company gives you four options for receiving payouts, each of which will generate a different amount of monthly income. Here’s how much income a $300,000 fixed annuity might pay per month:

Now, say that you’re 65 years old and you want to purchase an immediate annuity with payments beginning right away. Here’s how much a $300,000 annuity would pay in monthly income in that scenario, assuming the same four payment options:

Both sets of calculations assume that you are the only person who will receive income from the annuity during your lifetime, with some payment options allowing money to be passed on to one or more named beneficiaries. If you’re married and would like the annuity to pay money out to your spouse for the remainder of their lifetime after you pass away, that would change the amount of monthly income you’d receive.

Specifically, your monthly payments from the annuity would be less. How much less can depend on your life expectancy and your spouse’s life expectancy. If you have a specific monthly income need that you would like an annuity to meet, you might have to adjust the annuity amount to produce that level of income for yourself and your spouse.

How Much Monthly Income Can I Expect From an Annuity?

The amount of monthly income an annuity generates depends largely on the type of annuity, its face value and how much interest the annuity earns. The amount can be anywhere from a few hundred dollars a month to a few thousand dollars. Generally speaking, the larger the annuity and the longer the gap between the time you purchase it and the time you begin making withdrawals, the larger the monthly payment is likely to be.

The better question to ask might be how much money do you need an annuity to generate in monthly income? If you’re considering an annuity for retirement, it’s important to consider what income sources you already have. For example, that might include:

Asking those kinds of questions can help you decide if an annuity is something you need and if so, how large of an annuity is necessary to meet your retirement income goals.

If you’re interested in purchasing an annuity, it may be helpful to talk to an annuity expert or your financial advisor. Annuities and annuity companies are not created equally and these financial products can sometimes be confusing to understand. Your financial advisor can help you to assess your income needs for retirement and offer guidance on the types of annuities that may best fit your situation.

Bottom Line

Annuities can help to supplement other sources of retirement income, though they aren’t necessarily right for everyone. If you’re considering a $300,000 annuity, it’s helpful to know how much money it could put back into your pocket each month during retirement to decide if the upfront cost is worth it.

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