What a lump sum buys as guaranteed income — fixed-period or lifetime
| Milestone | Total received by then | vs lump sum |
|---|
An annuity answers retirement's scariest question — what if I outlive my money? — by trading a lump sum for a guaranteed income stream. The concept is excellent; the aisle where it's sold is littered with fee-heavy variants. This calculator does the clean math for the two honest structures: fixed-period payouts (exact amortization) and lifetime income (SPIA-style, priced by age), so you can recognize a fair quote and spot a bad product from across the room.
| Age at purchase | Typical single-life payout | On $250,000 |
|---|---|---|
| 60 | ~6.2–6.8%/yr | ~$1,350/mo |
| 65 | ~6.8–7.5% | ~$1,490/mo |
| 70 | ~7.6–8.4% | ~$1,660/mo |
| 75 | ~8.8–9.8% | ~$1,930/mo |
Two things to internalize: payout rates aren't "returns" — much of each check is your own principal coming back — and they rise steeply with age because the insurer expects fewer payments. Joint (survivor) options pay ~10–15% less but cover two lifetimes.
The research-backed use: annuitize enough to cover essential expenses when combined with Social Security — the "income floor" — and invest the rest for growth and flexibility. Delaying Social Security itself is the best annuity purchase available (8%/yr guaranteed, inflation-adjusted, no counterparty risk — see the Social Security Estimator); a SPIA tops up whatever gap remains. Annuitizing everything sacrifices liquidity and legacy; annuitizing nothing leaves your 90s exposed.
Both exist: plain SPIAs and DIAs are fairly-priced longevity insurance that economists wish more retirees used; variable/indexed products with fee stacks and surrender walls are frequently sold, rarely bought on merit. The product name tells you which aisle you're in.
A pure life annuity stops — that's the pooling that funds higher payouts for survivors. Riders change it: period-certain (payments guaranteed 10–20 years), cash-refund (heirs get unreturned premium). Each rider trades payout for protection; get quotes both ways.
No — a 7% payout at 65 includes substantial return OF principal. The internal return depends on how long you live: die at 75 and it was poor; live to 95 and it beat bonds handily. That uncertainty-swap is the entire product.
From IRA/401(k) money: fully taxable as ordinary income. From after-tax savings: each payment splits into tax-free principal and taxable earnings via the exclusion ratio until basis is recovered.
No — the flooring strategy annuitizes only the gap between essential expenses and Social Security. Liquidity for emergencies, growth against inflation, and legacy goals all argue for keeping the rest invested.
Buy from A-rated (or better) insurers, stay within your state guaranty association limit per insurer (typically $250k of annuity value), and split larger amounts across companies.
Yes — every figure computes locally in your browser.
Benchmark every annuity quote against this calculator and the Social Security delay alternative, buy only products you can explain in one sentence, and size the purchase to your income gap — that discipline captures everything good about annuities and dodges everything else.