An annuity is like a personal retirement plan that you buy for yourself. You give an insurance company a portion of money, say $100,000, and in return they promise to pay you a steady income, either now or later. It’s a way to make sure that you don’t run out of money during your retirement, by giving you regular payments for a certain number of years or even for the rest of your life.
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The payout can vary significantly depending on a number of key factors, including the type of annuity you choose, your age and gender, current interest rates, and how long you want the payments to continue.
Below is how much money you can expect to make per month from a $100,000 annuity:
Direct income annuity:
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If you are 65, you will receive approximately $614 per month with an immediate annuity.
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If you are a 65-year-old woman who chooses an annuity, the amount may be closer to $608 per month.
Fixed annuity with a fixed payout period:
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At a 5% interest rate and a 10-year payout term, you could earn approximately $1,055 per month.
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If you extend that payout to 20 years, the monthly payment could drop to about $707.
How age and gender play a role in:
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Older people generally receive higher monthly benefits because payments are expected to last for a shorter period. For example, a 70-year-old will receive slightly more than a 65-year-old.
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Men generally receive slightly more than women, because they have a shorter life expectancy on average.
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You can take out an annuity at almost any age, but the specifics, such as the income you receive and the benefits available, may vary based on your age at takeout.
Factors that may affect your payout
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Interest rates: Higher interest rates can mean you receive more money each month.
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Annuity Type: Immediate annuities begin paying out shortly after you purchase them, while deferred annuities begin paying out later and may earn you more per month because of the accrued interest.
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Payout period: If you extend the payout period, your monthly payments may be smaller because the total amount is spread over more years.
Are you thinking about alternatives?
If annuities don't seem like the best choice for you, there are other ways to generate retirement income:
Dividend paying stocks: These can provide you with a regular income through dividends. If the company does well, those dividends can grow over time. The great thing? You can still get access to your original investment.
Bonds: Bonds, especially government or high-quality corporate bonds, provide a steady income through interest payments. They are generally less risky than stocks, but tend to have lower yields.
See also: IRS finalizes 10-year retirement withdrawal rule, making matters 'even more insanely complicated'
Property: Owning rental properties can provide a regular income. While it requires some initial capital and ongoing management, real estate can provide income and potential appreciation.
Systematic recording plans: This approach involves withdrawing a fixed percentage of your investments each year. You retain control over your investments, but you run the risk of running out of money if you withdraw too much too quickly.
Annuities can be great, but you need to know the pros and cons to make an informed decision. Here are a few things to consider:
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Longevity: Annuities are great for guaranteeing income for life, which is helpful if you’re worried about outliving your savings. Other options may require more careful planning to ensure they last into retirement.
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This should give you a pretty good idea of what to expect and what to think about. Before you sign an annuity contract, consider talking to a financial advisor. These experts can help you determine what’s best for your goals and situations — whether that’s an annuity or another investment option.
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This article If I Buy a $100,000 Annuity, How Much Cash Will I Get Each Month? originally appeared on Benzinga.com
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