How Much Income Will an Annuity Pay?

How a SPIA works

You hand an insurance company a lump sum and, in return, the insurer pays you a guaranteed monthly check starting right away and lasting for the term you elect, usually your lifetime. The lump sum is gone, and in exchange you no longer carry investment or longevity risk on that portion of your savings.

What drives the payout

Older age at purchase produces a higher monthly payout because the expected payout period is shorter. Higher prevailing interest rates also raise payouts, since the insurer earns more on the reserve backing the contract. That is why the same 100,000 dollar premium buys meaningfully more monthly income at 75 than at 65, and more in a higher-rate environment than a lower one.

Payout options

• Life-only: highest monthly payout, but payments stop at death
• Life with period certain (for example 10 or 20 years): a bit less per month, but payments continue to a beneficiary if you die within the certain period
• Joint-and-survivor: pays over two lives; the survivor continues to receive all or part of the payment

The tradeoff

You trade liquidity and legacy for longevity protection and simplicity. Once the premium is paid, that money is not available for emergencies, and (under a life-only option) nothing is left for heirs. In exchange, no market downturn or long lifespan can reduce or exhaust the income.

Worked example

A 70-year-old man pays a 100,000 dollar premium for a life-only immediate annuity in a moderate-rate environment. The insurer might offer roughly 700 to 750 dollars per month for life. The same premium at age 65 might only produce about 550 dollars a month, and joint-and-survivor with a spouse would lower it further.