How much does an annuity pay each month?

What is an annuity payout?

An annuity payout is the regular income an insurer pays you in exchange for a lump-sum premium. With an immediate annuity, income starts right away; with a deferred annuity, it starts later. The size of each check depends on how much you put in, the interest rate credited, how often you're paid, and how long the payments are meant to last — a fixed number of years or the rest of your life.

Lifetime income annuity vs. fixed-term annuity

A lifetime income annuity — also sold as a single-premium immediate annuity, or SPIA — pays for as long as you live and stops at death. A fixed-term (or period-certain) annuity pays for a set number of years and passes anything left to your beneficiary. Set the term above to the number of years you want covered, or to the gap between your age now and the age you expect to reach, and the calculator will price either one.

• Fixed-term payments last for a set number of years — say 10, 20, or 30. If you die before it ends, the remaining payments go to your beneficiary. The trade-off is that a fixed term can't protect you from outliving your money if you live longer than the term.
• Life annuity pays as long as you live, however long that is. It's true longevity insurance, but payments stop at death (unless you add an extra guarantee for a set period or a refund option), so an early death means a smaller total.

This calculator models both as self-funded schedules so you can compare the income each one implies. A real life annuity pools many people's mortality risk, which is why an insurer can sometimes quote a higher lifetime payment than a pure do-it-yourself withdrawal would support.

What drives the size of your check

• Premium: more money in means a larger check, proportionally.
• Interest rate: a higher credited rate lets each dollar stretch further, raising the payment.
• Length: the longer the payout period, the smaller each individual check, because the same premium is spread thinner.
• Frequency: monthly checks are smaller than annual ones, but you get twelve of them a year.

Estimated monthly annuity payouts by premium and term

At a level 5% credited rate, the standard payout formula produces these pre-tax monthly amounts. The 25-year column is the self-funded equivalent of stretching income from age 65 to 90:

These are formula estimates, not insurer quotes. A true life-only immediate annuity pools mortality risk and may quote a different payment; joint-life, period-certain, refund, and inflation riders generally reduce the starting check.

A worked example: $250,000 over 20 years

Run the numbers this page loads with — a $250,000 premium, a 5% credited rate, monthly payments, a 20-year term:

• The monthly payment works out to about $1,652, or $19,825 a year.
• Over the full 240 payments that is roughly $396,500 — about $146,500 of it credited interest, and the rest your own $250,000 handed back a slice at a time.
• The annual income is 7.9% of the premium, even though the annuity only credits 5%. That gap is not extra return; it is your principal being consumed.

That last point is the single most misread number in annuity marketing. A "7.9% payout rate" is not a 7.9% yield, and comparing it against a 4% portfolio withdrawal rate is comparing two different things — the annuity is deliberately spending itself to zero, while a 4% rule is designed to leave the principal standing.

Payout options, and what each one costs you

When you annuitise, you pick a payout shape. Each layer of protection lowers the monthly check, because the insurer is taking on more:

• Life only — the largest payment. Income stops the day you die, even if that's the month after you buy.
• Life with period certain (commonly 10 or 20 years) — pays for life, but if you die inside the guaranteed period the remaining payments go to your beneficiary.
• Cash or installment refund — pays for life and guarantees your beneficiary receives at least the unpaid balance of your premium.
• Joint and survivor — pays while either spouse lives, usually with the survivor's benefit set at 100%, 75%, or 50%. A joint quote is meaningfully lower than a single-life one because it covers two lifetimes.
• Period certain only — the fixed-term scenario this calculator models. It pays a set number of years to you or your beneficiary, and provides no protection at all against outliving it.

How annuity income is taxed

• Bought with after-tax money (a non-qualified annuity), each payment is split by an exclusion ratio: the share representing your original premium comes back tax-free, and the rest is taxable interest. Once you've recovered the whole premium — typically around your life expectancy — every later payment is fully taxable.
• Bought inside an IRA or 401(k), the whole payment is ordinary income, exactly as any other withdrawal from that account would be.
• No capital-gains treatment. Annuity gains are always ordinary income, which is a real cost compared with holding the same money in a taxable brokerage account.
• It counts against other thresholds. Taxable annuity income raises the provisional income that determines how much of your Social Security is taxed, and the MAGI that sets your Medicare IRMAA surcharge two years later.
• Before 59½, the taxable portion of a withdrawal from a deferred annuity generally carries a 10% penalty on top of income tax.

What to check before you buy

• Shop at least three insurers. Quotes for identical single-premium immediate annuities routinely differ by 5–10% for the same money — that difference is permanent and compounds over every payment.
• Check the insurer's financial strength rating. An annuity is a promise, and it is only as good as the company making it.
• Know your state guaranty association limit. Coverage exists if an insurer fails, but it is capped — commonly around $250,000 of present value of annuity benefits, varying by state. Splitting a large premium across two insurers is a standard response.
• Ask about surrender charges on deferred products. They typically start high and decline over 5 to 10 years, with a free-withdrawal allowance of around 10% a year.
• Decide about inflation up front. A cost-of-living-adjusted annuity starts with a visibly smaller check and catches up later. A level check loses roughly a third of its purchasing power over 20 years at 2% inflation.
• Consider a QLAC if RMDs are the problem. A qualified longevity annuity contract bought inside an IRA can defer income to as late as age 85, and the premium is excluded from the balance used to compute your required minimum distributions. SECURE 2.0 caps the premium at $200,000, indexed for inflation.

The mistakes that cost the most

• Reading the payout rate as a return. See the worked example — most of an annuity check is your own money coming back.
• Annuitising everything. Once the premium is handed over it is generally irreversible and illiquid. Covering essential expenses and keeping the rest invested is the common compromise.
• Buying level income and forgetting inflation. The check that felt comfortable at 65 buys noticeably less at 85.
• Ignoring Social Security first. Delaying Social Security to 70 buys inflation-adjusted, government-backed lifetime income at a rate no commercial annuity matches. It is usually the cheapest longevity insurance available.
• Not naming a beneficiary structure. A life-only payout that ends in year two is a real outcome; period-certain or refund options exist precisely for that.

Is an annuity right for you?

Annuities can be a good fit if you want predictable income you can't outlive and you value that certainty over liquidity and growth. They're less compelling if you need access to the lump sum, want to leave it to heirs, or can cover your essential expenses from Social Security and a pension already. Many planners suggest buying an annuity with only the portion of savings needed to cover essential costs, and keeping the rest invested. Weigh it against a systematic withdrawal plan using our retirement drawdown calculator.

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