An annuity is like a personal pension plan you buy for yourself. You give an insurance company a chunk of money – say $100,000 – and in return, they promise to pay you a steady income immediately or start later. It's a way to ensure you don't run out of money in retirement, giving you regular payments for a set number of years or even for the rest of your life.
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The payout can vary significantly depending on a few key factors, such as the type of annuity you choose, your age and gender, current interest rates and how long you want those payments to continue.
Here's a look at how much cash you can expect each month from a $100,000 annuity:
Immediate Income Annuity:
For someone 65, you might get around $614 each month with an immediate income annuity.
If you're a 65-year-old woman opting for a lifetime annuity, it might be closer to $608 a month.
Fixed Annuity with a Set Payout Period:
With a 5% interest rate and a 10-year payout, you could see about $1,055 a month.
If you extend that payout to 20 years, the monthly amount might drop to roughly $707.
How Age and Gender Play In:
Older people generally get higher monthly payouts because the payments are expected to last for a shorter time. For example, a 70-year-old might get slightly more than a 65-year-old.
Men typically receive a bit more than women because they have shorter life expectancies on average.
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You can purchase an annuity at almost any age, but the specifics such as the income you receive and the benefits available can vary based on your age at purchase.
Factors That Could Affect Your Payout
Interest Rates: Higher interest rates can mean more money in your monthly payouts.
Annuity Type: Immediate annuities start paying out shortly after you buy them, while deferred annuities kick in later, potentially giving you more per month due to accumulated interest.
Payout Duration: If you stretch out your payout period, the monthly checks might be smaller since the total amount is spread over more years.
Thinking About Alternatives?
If annuities don't seem like the best fit for you, there are other ways to generate retirement income:
Dividend-Paying Stocks: These can give you regular income through dividends. If the company does well, those dividends might increase over time. The nice part? You can still access your original investment.
Bonds: Bonds, especially government or high-quality corporate ones, offer steady income through interest payments. They're generally less risky than stocks but usually provide lower returns.
Real Estate: Owning rental properties can bring in regular income. While it requires some upfront capital and ongoing management, real estate can provide income and potential appreciation.
Systematic Withdrawal Plans: This approach involves withdrawing a fixed percentage from your investments each year. You keep control over your investments, but you risk running out of money if you withdraw too much too quickly.
Annuities can be great, but you'll need to know the good and the bad to make an informed decision. Here are a few things to consider:
Liquidity: Annuities often tie up your money, making it tough to access in a pinch. Alternatives like stocks or bonds are more flexible.
Inflation: Fixed annuities give you consistent payments but don't adjust for inflation. On the other hand, stocks or real estate might offer growth potential that helps keep up with inflation.
Longevity: Annuities are great for guaranteeing income for life, which is handy if you're worried about outliving your savings. Other options might require a bit more careful planning to ensure they last through retirement.
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This should give you a pretty good idea of what to expect and think about. Before jumping into an annuity contract, consider talking to a financial advisor. These experts can help determine what fits best with your goals and situations – whether that's an annuity or another investment option.
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This article If I Buy A $100,000 Annuity, How Much Cash Will It Pay Me Each Month? originally appeared on Benzinga.com
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