An immediate annuity may turn part of your retirement savings into a monthly payment for life. That might be helpful if you don’t have a pension, and it could make it easier to manage withdrawals when the market drops. The catch is that you usually give up access to the money you put in, and fixed payments can lose buying power over time. Here’s what $250,000 could pay each month at age 62 and the limits that come with that income.
What Putting $250K Into an Annuity Could Pay at 62
How much an immediate annuity pays at age 62 will depend on several factors, including your sex, the insurance company, interest rates and the options you choose. An insurer quote is the best way to know what you can receive based on current rates.
As an example, let’s assume that a $250,000 annuity pays $1,500 a month. Your annual income would be $18,000 ($1,500 × 12). At that rate, it would take roughly 14 years for your total payments to add up to your original $250,000 contribution ($250,000 ÷ $18,000 = 13.9 years).
If you started at 62, you would be about 76 by the time your total payments reached $250,000. This does not mean the annuity would run out. Annuity payments can include both a return of the money you put in and earnings. If you choose lifetime payments and live long enough, the insurer will continue paying you after your total payments exceed $250,000.
Buying an immediate annuity when you are older typically results in a larger monthly payment because the insurer expects to make payments for fewer years. Waiting also means giving up the income you could have received earlier, and interest rates may be different by the time you buy.
Features that provide more protection for a spouse or beneficiaries generally reduce the amount you receive at the start. The table shows how common contract features might affect your monthly payment:
| Contract Feature | How It Works | Effect on Your Monthly Payment |
|---|---|---|
| Single life | Pays you for as long as you live and typically stops when you die | Usually provides the highest starting lifetime payment for one person |
| Joint and survivor | Payments could continue to a surviving spouse after you die | Usually lower because the insurer may make payments over two lifetimes |
| Guaranteed period | Payments are guaranteed for a set number of years and can continue to a beneficiary if you die during that period | Usually lower than a similar life-only option |
| Refund feature | Some remaining value may go to your beneficiaries if you die before receiving enough payments | Usually lowers the starting payment |
| Annual increases | Payments rise over time by a set amount or percentage | Usually starts with a smaller monthly payment |
A financial advisor can help you determine how an annuity fits with other retirement income.
What You Could Give Up for a Guaranteed Check
Once you buy an immediate annuity, you generally can’t withdraw that money to cover a home repair, medical bill or another unexpected expense. With a life-only contract, payments also stop when you die, even if you’ve received less than you paid.
Inflation poses a separate risk, since a fixed payment stays the same while the cost of living goes up. Some annuities offer annual increases, though they usually start with a smaller check.
The table shows how much a fixed $1,500 monthly payment could buy in today’s dollars if prices rise 3% a year:
| Your Age | Years After Purchase | What $1,500 Could Buy in Today’s Dollars |
|---|---|---|
| 62 | 0 | $1,500 |
| 72 | 10 | About $1,116 ($1,500 ÷ 1.03¹⁰) |
| 82 | 20 | About $831 ($1,500 ÷ 1.03²⁰) |
| 87 | 25 | About $716 ($1,500 ÷ 1.03²⁵) |
In this example, the same check may buy less than half as much by age 87 as it did when payments started. Actual inflation could be higher or lower than 3%, so the loss in buying power might be larger or smaller.
Your payments also depend on the insurance company’s ability to pay them. State guaranty associations may provide some protection if an insurer fails, but coverage limits vary by state. Before you buy, you can check the insurer’s financial strength rating to get a better sense of its ability to pay claims.
When an Annuity Could Be Worth Your Money
An immediate annuity might make sense when Social Security and pension income don’t fully cover your essential expenses and you want income that can last for life. It could work best when you still have emergency savings and other investments to handle unexpected bills and rising costs.
A financial advisor could help you compare personalized quotes, review options for spouses and think through how much savings you may want to commit.
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