An annuity can be an attractive option to build your retirement nest egg. Adding guaranteed retirement income to your retirement can give you financial stability. But the exact amount you will receive 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 the money upfront. In others, you would make payments to your insurance company over a long period of time.
After you provide the funds, your insurance company will make regular payments in a predetermined amount over a certain period of time. Most people who buy annuities use the funds as an additional income stream for retirement. But pension 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’ll see an interest rate set out in the contract. You’ll want to lock in a high interest rate for higher payments.
When you want the payments: You can choose between an immediate annuity or a deferred annuity. An immediate annuity starts immediately. But you’ll usually see a higher monthly payment with a deferred annuity.
Type of annuity: The monthly payment you receive from an annuity may or may not fluctuate. If you sign up for a fixed annuity, you’ll lock in guaranteed monthly payments. If you sign up for a variable annuity, you won’t find guaranteed monthly payments. Variable annuities are usually linked to market factors. So, if interest rates rise, your monthly payment may increase.
The table below gives examples of what a fixed income immediate annuity of $200,000 would pay for multi-age annuities. The data comes from a Charles Schwab computer.
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
The unique details of your annuity will determine your monthly payment. Take the time to carefully review the information in your annuity contract to make sure your payment is what you want it to be.
Should you take 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 reliable income. A fixed annuity provides a reliable stream of income whether you are retired or not. A second factor to consider is your expected longevity. If you have a long life expectancy, then an annuity can help you support yourself for that long. A third factor has to do with how dedicated you want to be to managing your finances. An annuity sends you a monthly payment every month. You won’t need to monitor investments, rebalance a portfolio or manage tenants to receive this income.
Now, let’s consider three reasons why another investment vehicle might be a better fit:
High charges: Unfortunately, most annuities have high fees. If you want to avoid fees, choosing another investment is the best way to go.
No access to master: Once you sign up for an annuity, you won’t be able to withdraw your money. So if a major expense comes up, that capital is out of reach.
Other savings priorities: If you want to save for other purchases, the cost of an annuity may be too much to commit to.
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 want to consider other options. If you can’t decide whether an annuity is right for you, then it’s time to talk to a financial advisor. He or she can help you assess your entire financial picture to see where an annuity might fit into the picture.
Work with a financial advisor to help you plan 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 who is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
Saving for retirement starts with understanding how much you need to save. SmartAsset’s free retirement calculator can help you see how much money you’ll need to save.
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