How Much Monthly Income You Can Count on From a $100K Annuity

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How Much Monthly Income You Can Count on From a $100K Annuity

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There are a dizzying array of investment options to choose from when you’re planning for your retirement. For investors that are looking for the stability that comes from a guaranteed income stream, an annuity might be a good option.

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If you’re considering an annuity, you may be wondering how much monthly income you can expect. The answer will depend on the type of annuity you have and the specific terms of the contract. Let’s take a look at how much monthly income you could count on from a $100,000 annuity.

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What Is an Annuity?

An annuity is an insurance contract between you and a financial institution which requires the issuer of the annuity to pay a guaranteed income for a set period of time.

The income stream can be fixed or variable and is purchased by making monthly premium payments or a single lump-sum payment. Annuities are most commonly used for retirement purposes as a way to mitigate the risk of outliving your retirement savings.

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Types of Annuities

Before figuring out how much you can expect to receive from a $100,000 annuity, it is important to understand the different types of annuities. Annuities are either immediate or deferred, and can be fixed, variable or indexed.

An immediate payment annuity begins paying more or less right away once the purchaser, or annuitant, deposits a lump sum, while deferred annuities don’t begin paying until the annuitant reaches a specific age.

Fixed annuities provide a guaranteed minimum interest rate and fixed payments to the annuitant. Variable annuities will pay the annuitant less or more depending on the performance of the underlying investments of the annuity fund.

Indexed annuities are a sub-type of fixed annuity that provide a return based on the performance of an equity index like the S&P 500.

What Happens to Annuity Payments at Death

A big question that a lot of people have is what happens to annuity payments when you die. As you might expect, this will depend on the terms of your annuity contract. The most common are term certain, life and life with guaranteed period.

Term certain annuity: If you die before the end of the term, the payments will continue to be paid to your beneficiaries for the remaining time.

Life annuity: These payments are only made up until the time of your death.

Life annuity with guaranteed period: Your life annuity specifies a time period during which benefits will still be paid to your beneficiaries if you die.

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Annuity Fees

The fees charged on an annuity depend on the issuing company and the type of annuity. It includes things like administrative fees and investment expense ratios.

These fees can commonly range anywhere from 1% to 3% for an immediate annuity all the way up to 8% for fixed index annuities. In general, the more complex your annuity is, the more fees you will potentially face.

Keep in mind that further penalty fees may be assessed if you withdraw your funds early.

How Much Income To Expect

If you’re considering an annuity, you’re probably most interested in how much income you’ll receive each month in return for your investment. This is a key factor in deciding if an annuity is appropriate for your financial situation.

For a very simple annuity, it’s easy enough to calculate. For example, a $100,000 annuity with a guaranteed 6% interest rate that pays out over 10 years would give you just over $1,100 monthly.

From there it gets a lot more complicated. The good news is that there are a lot of free calculators online that can give you a rough idea of what you can expect.

Annuities are complicated financial instruments. Before investing in one for your retirement, make sure you understand exactly what you’re paying for and what you’re entitled to receive. A professional financial advisor is a great resource to help you decide if an annuity is right for you.

Sean Bryant contributed to the reporting for this article.

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