Here's How Much Income You Can Get With a $100,000 Annuity
Key Points
Annuities can provide guaranteed income from a lump-sum investment.
The size of these payments depends on a number of factors, including age, location, and whether you're looking for an eventual return of some of your initial capital.
Like any other investment option or retirement planning strategy, annuities have upsides and downsides to consider before agreeing to any contract.
Do you need to turn a lump sum of money into a reliable income? Dividend stocks are one option. Bonds are another. The former can't outright guarantee income, or, for that matter, that your principal won't suffer some sort of setback, although owning quality stocks certainly curbs this downside. Bonds aren't exactly guaranteed to pay interest, although, again, if you buy quality, it tamps down much of this risk.
There's another often-overlooked choice for income-seeking investors, though. That's annuities.
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Your annuity payment depends on...
They're technically an insurance product, although their underlying value is ultimately a basket of stocks and/or bonds. But the insurance companies offering annuities have gotten very, very good at pooling their customers' funds to minimize risk and volatility, allowing them to (reasonably) safely guarantee consistent income from your purchase.
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And they come in all shapes and colors, so to speak. Some will provide you with a guaranteed payout until you pass away, while others will do the same, and then refund some or even all of your initial upfront investment. You can also purchase an annuity that only pays out for a set number of years. It's even possible to share an annuity with a spouse. Since all of these options pose a different degree of risk to the insurer -- as does your age -- each of these annuities would result in a different-sized monthly payment.
Just for some broad perspective, here are some current ballpark monthly payments for a range of scenarios on a $100,000 annuity. Single life annuities pay income for as long as you live, while life + 10-year or 20-year certain annuities provide payments for your lifetime, but if you die within the certain period, remaining payments go to a beneficiary.
| Age | Single/Life | Life + 20-Year/Certain | 20-Year/Certain |
|---|---|---|---|
| 60 | $517 | $484 | $446 |
| 70 | $727 | $653 | $446 |
| 80 | $1,115 | $897 | $446 |
Data source: Annuity.org
Again, these are just approximate figures, subject to change depending on several factors, including any health issues, where you live, market conditions at the time you step into the annuity, and the insurer. It's a starting point, though. Your next step would be to speak with a qualified financial professional who can help you decide your best option and tell you precisely what your numbers would be.
As you can see, however, annuities are returning anywhere between 5% and 13% (annualized) of your investment, depending on your age and other factors.
Worth considering before dismissing
Annuities occasionally get a bad rap, and in some cases, for good reason. Your money is usually tied up for the duration of the agreement, if not forever. Fees and commissions can also be relatively high. And, the underlying guarantee of income is only as strong as the insurance company backing these contracts. If you have these concerns, think carefully before buying into any particular annuity.
They can certainly serve a purpose, though, like providing a reliable income for anyone who can't or doesn't want to manage a conventional portfolio of stocks or bonds. No one should simply rule them out without weighing all their pros and cons, or without comparing what they offer to what that individual needs to accomplish with their nest egg.
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