I Want To Buy A $250,000 Annuity – What's The Monthly Income It'll Bring In?

Regarding retirement planning, an annuity can feel like a comforting safety net. You trade a chunk of your savings – say $250,000 – for a steady income stream, often for the rest of your life. But how much bang for your buck are you getting? Let's break it down.

Why Buy an Annuity in the First Place?

Annuities are for people who like the idea of guaranteed income. Think of it as creating your pension. You hand over a pile of money to an insurance company and they promise to pay you back in regular installments. It's a way for retirees to take the stress out of budgeting, knowing you'll have money coming in no matter what. But like any financial product, annuities have pros, cons and fine print.

What You Can Expect from a $250,000 Annuity

The income from an annuity depends on factors like age, gender and whether you're buying it for yourself or as a joint annuity with a spouse. Your state also impacts because some places have specific insurance regulations, such as a guaranteed minimum interest rate. 

Here's what $250,000 could get you using annuity calculators with rates for November 2024. 

Immediate Annuity Payouts

These start payments immediately, perfect if you're ready to retire now.

At Age 65:

• Male: About $1,572 per month
• Female: About $1,498 per month
• Joint Life (both 65): About $1,354 per month

At Age 70:

• Male: About $1,776 per month
• Female: About $1,674 per month
• Joint Life (both 70): About $1,482 per month

At Age 75:

• Male: About $2,084 per month
• Female: About $1,933 per month
• Joint Life (both 75): About $1,663 per month

The older you are when payments begin, the higher your monthly payout. Why? Fewer years of payments for the insurer to cover. You probably also noticed men receive slightly more than women due to the difference in life expectancy. 

Deferred Annuity Payouts

If you're not in a rush, deferred annuities can be better. Letting your money sit and grow for a while will lock in higher monthly payments when the payouts eventually start. How much higher? That depends on the length of the deferral period and interest rates at the time.

Variable Annuities

Looking for a little excitement (Or stress)? Variable annuities tie your income to the stock market. If your investments do well, you could receive more money. But if the market dips, so could your payout. It's a gamble that's not for everyone.

Common Questions About Annuities

Can I pull out extra money if I need it?

Sometimes. Many annuities let you make extra withdrawals, but doing so can reduce your future payments.

What happens if I die?

It depends on the payout option you choose. Some plans offer "Life with Period Certain," which guarantees payments to your beneficiary for several years even if you pass away early.

Can annuity payments grow with inflation?

Some annuities offer a cost-of-living adjustment (COLA). This is great for keeping up with inflation but lowers your starting payment.

Are payments taxed?

Yes, but only the earnings portion. Part of each payment is considered a return of your initial investment and isn't taxed. The rest, representing growth, is taxed as ordinary income unless held in a tax-advantaged account.

Should You Buy an Annuity?

Annuities aren't one-size-fits-all. They're a great way to ensure a steady income stream, but they come with trade-offs – like losing liquidity and potential growth in the stock market. Before diving in, closely examine your finances and retirement goals.

Annuities are complicated. Consulting with a financial advisor can help you decide if this safety net is worth your $250,000 or if there's a better option to generate income for you.