An annuity can be an attractive option for building your retirement nest egg. Adding a guaranteed retirement income to your retirement can give you financial stability. But the exact amount you get from an annuity each month will vary. Let’s break down how much a $200,000 annuity will pay you each month. A financial advisor could help you put together a financial plan for your retirement needs and goals.
What is an annuity?
An annuity is a financial contract between an investor and an insurance company that generally locks in a regular monthly payment in exchange for an investment. In some cases, you will provide all funds upfront. In others, you’d be making payments to your insurance company over an extended period of time.
After you provide the funds, your insurance company will make regular payments at a pre-determined amount over a specific period of time. Most people who buy annuities use funds as an additional stream of retirement income. But retirement is not a requirement. You can buy an annuity if you want a guaranteed source of income for any situation.
Factors affecting payments
The exact amount you can expect from a $200,000 annuity will vary based on three factors:
The interest rate: When you sign up for an annuity, you will see an interest rate defined in the contract. We recommend locking in a high interest rate for higher payments.
When you want payments: You can choose between an immediate or deferred annuity. An immediate annuity takes effect immediately. But typically you’ll see a higher monthly payment with a deferred annuity.
Type of annuity: The monthly payment you receive from an annuity may or may not vary. If you sign up for a fixed annuity, you’ll lock in the guaranteed monthly payments. If you take out a variable annuity, you won’t find guaranteed monthly payments. Variable annuities are usually tied to market factors. So if interest rates go up, your monthly payment could go up.
The following table provides examples of what a $200,000 immediate, lifetime, fixed-income annuity would pay for beneficiaries of various ages. The figures come from a calculator by Charles Schwab.
Estimated Monthly Payments of a $200,000 Annuity Age Single Life Only Single Life + 10-Year Certain Single Life + 20-Year Certain Single Life + Cash Refund 85 $2,586 $1,809 $1,203 $1,836 80 $1,945 $1,632 $1,197 $1,542 75 $1,551 $1,435 $1,173 $1,335 70 $1,294 $1,254 $1,118 $1,179 65 $1,132 $1,116 $1,045 $1,067
Your unique annuity details will determine your monthly payment. Take the time to carefully review the information in your annuity agreement to make sure your payout is what you want it to be.
Should you get an annuity?
Depending on your financial circumstances, an annuity could be a reliable income stream for your retirement. One of the factors to consider is the need for a reliable income. A fixed annuity provides a reliable income stream whether you are retired or not. A second factor to consider is expected longevity. If you have a long life expectancy, an annuity can help support you for that long period of time. A third factor has to do with how committed you want to be to managing your finances. An annuity sends you a monthly payment every month. You won’t have to track investments, rebalance a portfolio, or manage tenants to receive this income.
Now, let’s consider three reasons why another investment vehicle might be more suitable:
High fees: Unfortunately, most annuities come with high fees. If you want to avoid fees, choosing another investment is the way to go.
No access to main: Once you sign up for an annuity, you will not be able to withdraw your funds. So, if a major expense arises, this capital is inaccessible.
Other savings priorities: If you want to save up for other purchases, the costs of an annuity may be too much.
An annuity can be a useful investment option that adds value to your retirement. But it’s not the right choice for everyone. Depending on your financial circumstances, you may be considering other options as well. If you can’t decide if an annuity is right for you, then it’s time to speak to a financial advisor. He or she can help you evaluate the entire financial picture to see where an annuity might fit into the picture.
Work with a financial advisor to help you map out a solid retirement plan. SmartAsset’s free tool matches you with up to three financial advisors serving your area, and you can interview your advisors at no cost to decide which one is right for you. If you’re ready to find an advisor who can help you reach your financial goals, get started now.
Saving for retirement starts with understanding how much you should be saving. SmartAsset’s free retirement calculator can help you see how much you should be saving.
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