How much does a $1 million annuity pay per month?
Depending on the payout structure and provider of the annuity, you may see a monthly benefit close to $6,000 for a $1 million annuity for the rest of your life. This article takes you through different annuity types, payment structures, and sample payments.
Summary
Annuities are designed to give guaranteed income for life, but you could sacrifice a bigger upside with other types of investments.
A monthly payout for a $1 million annuity is close to $6,000, but will vary depending on your age, the type of annuity, death benefits, and other features.
Annuities can be complex and expensive. Get connected to a financial advisor from Unbiased for clear, actionable advice on annuities.
What is an annuity, and how does it work?
An annuity is a contract with an insurance company designed to guarantee income. The guarantee is for a set number of years, your lifetime, or a combination of your lifetime plus payout to beneficiaries.
There are various ways to set up an annuity, as well as multiple types of payout options.
Here’s a quick rundown of the types of annuities you’ll encounter.
Income annuity
With an income annuity, you purchase the annuity upfront, and you’re guaranteed money for the rest of your life. These can be set up as lifetime annuities or period-certain annuities.
Common types:
Single-premium immediate annuity (SPIA): This type of annuity begins immediately after you fund it.
Deferred-income annuity: This type of annuity doesn’t pay out for at least two years after you fund it, which results in higher monthly payments down the line.
Qualified Longevity Annuity Contract (QLAC): A type of annuity purchased with a portion of your retirement savings, the purpose of which is to increase your income in retirement by deferring part of your retirement income that would have been subject to the required minimum distribution.
Deferred annuity
With a deferred annuity, you either make payments to fund the annuity or pay it all upfront. The annuity has a tax-free growth phase, and then you’ll receive payments from the annuity at a later date.
Common types:
Fixed-rate annuity: Guarantees you a predetermined amount for a set period of time.
Fixed indexed annuity: An annuity tied to an index, which ties it to market performance, but has less risk than a variable-rate annuity.
Variable-rate annuity: An annuity that fluctuates with market conditions. Bigger upside, bigger downside.
Registered index-linked annuity (RILA): A type of annuity tied to investments. Investors choose a risk tolerance that allows for some protection from losses. Gains are also capped, however.
Annuities might work in the following situations:
If one partner is a spendthrift and needs limits on their monthly income to ensure money is still available for the rest of their life.
If the rate on an annuity is higher than a bond fund or a CD, it could be a good way to lock in higher interest rates. Just be mindful of the fees to ensure it’s worth it.
If you need more tax-deferred funds and you’re already maxed out on IRA and 401(k) contributions.
Some of the downsides include:
It’s often not refundable or very flexible.
Fees could be very high.
There are penalties for cashing in early.
The return is lower than many other investments.
What are the different annuity payout structures?
The way your annuity is structured will affect both the amount you receive each month and the total payout amount.
Fixed period certain: You receive payment for a period of time, such as 10 or 20 years. You don’t receive lifetime income unless it’s a combination policy.
Income for life: Much like the name implies, you receive a monthly income for the rest of your life.
Life income with a period certain: This is a combination policy that provides a monthly income for the rest of your life, with a guaranteed period of payouts. If you pass away before the end of the period, the remainder goes to your beneficiary.
Joint or survivor life: This type of annuity pays out for the life of two people. There is one monthly payment, but it continues even if one partner passes away.
Cash refund: With a cash refund annuity, any amount of the original policy that wasn’t paid out monthly will be returned to the beneficiary in a lump sum.
Lump sum: Your annuity may have the option of paying out a lump sum, including the option to pay out a lump sum against the future value. It’s not usually advisable.
How much would a $1 million annuity pay?
The payout on a $1 million annuity depends on your age, how long you want the income to last, single or joint life, and income annuity option.
Here are a few examples to illustrate how these options would impact your monthly payout amount.
Single Premium Immediate Annuity: Single life, age 60, female
There are several options when investing $1,000,000 in an annuity.
Investing the entire $1,000,000 upfront and desiring payments to start immediately would mean you’re likely looking for a single premium immediate annuity (SPIA). Within this category, you can further choose your type of policy to see how the monthly payments change by the type of annuity payout.
Single life monthly income: $5,871 for the rest of your life. Should you pass away, there is no death benefit. The minimum payout is $0, meaning, if you deposit all your money in the annuity and then pass away two months later, the provider will keep all your money.
Single life with 10-year certain monthly income: $5,796 for the rest of your life. Should you pass away within 10 years, beneficiaries will receive payments until year 10. The minimum payout is $695,530.
Single life with 20-year certain monthly income: $5,635 for the rest of your life. Should you pass away within 20 years, your beneficiaries will receive the money until the end of the 20-year period. The minimum payout is $1,352,400.
Single life with cash refund: $5,683 monthly income for the rest of your life. Your beneficiaries receive the original lump sum, less the payouts you have already received. The minimum payout is $1,000,000.
Single Premium Immediate Annuity: Joint life, age 70, male
Single life monthly income: $6,124 for the rest of your life. No death benefit, $0 minimum payout.
Single life with 10-year certain monthly income: $6,109 for the rest of your life. Beneficiaries will receive payments until year 10. The minimum payout is $733,080.
Single life with 20-year certain monthly income: $5,909 for the rest of your life. Beneficiaries will receive the money until the end of the 20-year period. The minimum payout is $1,418,160.
Single life with cash refund monthly income: $6,072 for the rest of your life. Your beneficiaries receive the original lump sum, less the payouts you have already received. The minimum payout is $1,000,000.
Single Premium Immediate Annuity: Set period, age 60, female
Single life with 5-year certain monthly income: $18,253 for five years. Beneficiaries will receive the monthly income until the end of the period if you pass away. The minimum payout is $1,095,180.
Single life with 10-year certain monthly income: $10,182 for 10 years. Beneficiaries will receive payments until year 10 if you pass away. The minimum payout is $1,221,840.
Single life with 15-year certain monthly income: $7,685 for 15 years. Beneficiaries will receive payments for 15 years if you pass away. The minimum payout is $1,383,300.
Single life with 20-year certain monthly income: $6,606 for 20 years. Beneficiaries will receive the money until the end of the 20-year period if you pass away. The minimum payout is $1,585,440.
How do I choose the right annuity?
There are many options when it comes to choosing the right annuity.
Since annuities can come across as complex, if you have any questions at all, your best bet is to take it to an impartial financial advisor.
They can help you go over your options, run the numbers, and evaluate the annuity against other investment options.
Unbiased can match you with a financial advisor who can help you understand all the ins and outs of annuities so you can find the right financial tools for your situation.
Get expert financial advice
Annuities can offer regular income and are beneficial in certain situations. However, it’s not advisable to enter into a contract with an insurance company without some expert advice. This is one area where advice from a financial advisor is essential.
Unbiased can help you find professional advice in minutes. It’s an easy and pressure-free way to find a financial advisor to discuss your retirement options.
Content Writer
Alene Laney is an award-winning journalist for Unbiased, where she breaks down financial topics related to retirement, investing, and banking. She specializes in helping readers make the best decisions for their money with long-form content for brands and consumer publications.