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If I Buy a $750K Annuity, What Will It Pay Annually? | Retirement

Key Takeaways:

  • A $750,000 annuity can generate income without risking the principal.
  • Different annuity types, including guaranteed income annuities, act as a shield against market volatility and an insurance policy against outliving money.
  • Calculating the annual income from a $750,000 annuity involves factors like age and annuity type.

In some situations, investors may prefer annuities over direct stock market investments for stable, predictable income, especially during retirement.
Annuities offer a fixed or variable payout and can be good choices for risk-averse people looking for guaranteed returns and lifetime income, without a loss of their principal.

For example, if an investor has $750,000 available and wants to generate income without putting that original pool of money at risk, an annuity may be the answer.

“There are many types of annuities, but when considering a guaranteed income annuity, the consumer is purchasing a private pension, which pays out monthly income,” said Stephen Kates, a certified financial planner and principal consultant at Clocktower Financial Consulting in Charlotte, North Carolina, in an email.

“Income annuities can act as a shield against market volatility degrading monthly income and also an insurance policy against outliving your money,” he added.

How Can You Calculate Your Annual Income if You Buy a $750,000 Annuity?

To calculate the payout from a $750,000 annuity, consider factors including your age and annuity type.

The annual income and benefits of a $750,000 annuity vary depending on the type of annuity you choose, said Joe Stepanek, a wealth advisor with Thrivent in Andover, Minnesota, in an email.

For example, he said, a fixed annuity offers a specific rate of return on the amount that’s invested, typically over a set period of time.

“With a fixed rate, the returns are predictable and you know exactly how much you can earn each year,” he said.

A variable annuity offers returns that are determined by investments in the market, Stepanek added.

“While the market fluctuations can mean lower gains or even losses, that same market risk can result in higher returns that can translate to higher payouts,” he said.

Your age also influences the annual payout from an annuity. Older individuals generally get higher payouts due to shorter life expectancies, which affects payment calculations.

How Can You Best Understand What You’re Buying With a $750,000 Annuity?

Annuity contracts can seem complicated, so it’s a good idea to consult with a financial advisor or insurance agent to make sure you completely understand what you’re buying.

“Income annuities can have a lot of moving parts, but it’s a simple concept,” said Chris Orestis, founder and president of Retirement Genius, an online retirement resource, in Portland, Maine, in an email.

“You give the insurance company $750,000, and they’ll ensure a stream of income for as long as you live,” he said.

“I recommend doing some independent research as well as getting guidance from a financial planner,” he added. “There is a wealth of resources available to educate consumers on annuity products.”

Annuities are insurance products, but it’s not only insurance agents who can help clients with them. Although they can’t take commissions, fee-only fiduciary financial advisors can also provide clients with annuities.

Impact of Age and Life Expectancy on a $750,000 Annuity Payout

Your age plays a crucial role in determining the payout you’d get from a $750,000 annuity.

“A payout for an 80-year-old will be higher than that of a 65-year-old,” Orestis said. He cited the example in which a 65-year-old might receive $59,000 a year from a $750,000 annuity, versus an 80-year-old, who might receive $75,000 per year.

The annuity’s structure considers these factors to calculate the amount you receive. This ensures a balance between providing a steady income stream and accounting for the potential duration of payments based on the annuitant’s age.

Different Types of $750,000 Annuities and Their Payouts

There are different types of $750,000 annuities, including fixed, variable and indexed.

Fixed annuities offer a stable payout, while variable products are tied to market performance. Indexed annuities combine elements of both.

“Different types of annuities serve different purposes,” Orestis said.

Selecting the type of annuity that works for you, he said, depends on your individual situation, including factors such as time horizons, risk tolerance, other assets, income needs and liquidity preferences. “For example, an immediate annuity begins to pay out right after you deposit a lump sum, while deferred annuities pay out at a later time,” he said.

Variable annuities focus on long-term growth while fixed annuities focus on protecting the principal, he added.

Pitfalls to Avoid When Purchasing a $750,000 Annuity

If you buy a $750,000 annuity, be aware that you’re locking up your money and won’t have access to it. You may also face tax issues and surrender charges if you try to make withdrawals before the end of a specified period.

“Once you fund an annuity, you typically don’t have easy access to the full lump sum investment,” Stepanek said. “If you want access to the money beyond your prearranged income payments, you’ll likely pay a fee and reduce future income.”

In addition, because annuities are tax-advantaged vehicles, annuitants may owe taxes or penalties when making withdrawals before retirement, he said.

Finally, Stepanek explained that annuity withdrawals may be subject to surrender charges, which could be imposed within six to 10 years.

The surrender charge is generally a percentage of the amount you withdraw and gets lower the longer you hold the annuity.

For example, you might be charged a 7% surrender charge if you withdraw funds from an annuity in the first year, and the charge may decline by 1% each year until the end of the surrender period, Stepanek said.

How to Maximize a $750,000 Annuity Payout

To maximize the payout of a $750,000 annuity, consider your financial goals and ensure the payout aligns with them. Make sure you understand the charges, so you’re not overpaying when there’s a similar product available that has lower fees.

“Everyone has different goals and priorities in retirement, so maximizing a $750,000 annuity payout will look different for each person,” Stepanek said.

For example, if having guaranteed income over a specific period is important to you, consider a fixed-period income option. This will provide payments during the time period you select, such as 10, 15 or 20 years, he said.

A specified income amount option provides a specific dollar amount for each periodic payment until the annuitant stops the payments or the account runs out of money.

Another payout option is joint life income, which provides guaranteed income for your life, plus the life of another person, such as your spouse. The payments may be slightly lower than single-life annuities, Stepanek said, but the trade-off is payments that may last longer.

Sarah Goldberg
Sarah Goldberg

Sarah is a seasoned financial market expert with a decade of experience. She's known for her analytical skills, attention to detail, and ability to communicate complex financial concepts. She holds a Bachelor's degree in Finance, is a licensed financial advisor, and enjoys reading and traveling in her free time.

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