How Much Cash Can I Get Each Month From A $1.5 Million Annuity?

An annuity is a financial contract typically made with an insurance company. It involves a promise to make a single lump-sum payment or a series of payments over time. In return, the insurance company agrees to make fixed payments to the annuitant at a future date. Annuities, often used for retirement savings, offer a blend of investment and contract elements, providing retirees with a steady income stream.

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Types Of Annuities 

There are two main types of annuities: fixed-period and lifetime. Fixed-period annuities, also known as term or period certain annuities, guarantee payments for a specific duration. For instance, you could purchase an annuity that pays $500 monthly for 10 years. In contrast, lifetime annuities offer guaranteed payments for the annuitant’s entire life, starting at retirement or a predetermined age.

Monthly Payout On $1.5 Million

The potential monthly payout from a $1.5 million annuity depends on various factors, including the type of annuity, the age of the purchaser and the timing of the purchase. Here are some examples.

Lifetime annuity with fixed return: A $1.5 million annuity from Charles Schwab, purchased 30 years in advance and structured as a lifetime annuity with a fixed return, could yield approximately $29,624 per month during retirement. If structured with a period certain for 20 years, the monthly payout might be around $35,373, resulting in a total payout of $8.5 million over the contract's duration​​.

Lifetime income rider: If a 55-year-old person purchases a $1.5 million annuity with a lifetime income rider and plans to retire in 10 years at age 65, they would receive roughly $182,185 per year, or approximately $15,182 per month, for the rest of their life. The remaining balance is passed down to beneficiaries in a lump sum upon the annuity owner’s death​​.

Immediate retirement: At age 60, an immediate annuity with a $1.5 million investment could provide a guaranteed annual income of $91,500, or about $7,625 per month, for the rest of the insured's lifetime​​.

Understanding Annuity Returns And Structures

The rate of return on annuities typically ranges from 1% to 5.5%, averaging around 3.2%. The rate is subject to change based on various factors, such as the contract’s duration and the timing of the purchase. Annuities can have fixed, variable or indexed return structures, each with unique characteristics. 

A fixed-interest annuity promises a specific payment over a predetermined period. 

A variable interest annuity’s return depends on external factors like market rates. 

An indexed annuity ties its return to a third-party index, such as the S&P 500.

Important Considerations For Annuity Investments

Given these complexities, calculating a clear, average rate for annuity payments is challenging. The exact return on an annuity depends on the issuing company’s offerings and the annuity’s specific terms.

Factors such as payment structure (lump sum or structured payments), purchase date, annuity length and the company involved all influence the annuity’s payout.

Given these complexities, consulting a financial adviser is advisable when considering an annuity investment. A financial adviser can provide expert guidance on whether an annuity aligns with individual retirement goals and offer insights into the various options available. This professional advice is particularly important for substantial investments like a $1.5 million annuity, where the financial implications are significant. 

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*This information is not financial advice, and personalized guidance from a financial adviser is recommended for making well-informed decisions.

Jeannine Mancini has written about personal finance and investment for the past 13 years in a variety of publications including Zacks, The Nest and eHow. She is not a licensed financial adviser, and the content herein is for information purposes only and is not, and does not constitute or intend to constitute, investment advice or any investment service. While Mancini believes that the information contained herein is reliable and derived from reliable sources, there is no representation, warranty or undertaking, stated or implied, as to the accuracy or completeness of the information.