As with any investment or retirement fund, many people want to know exactly how much money they can make and what they can expect the payout to be. Guaranteed income annuities are very popular because they ensure you get the same payment and the same amount of income every month.
Exactly how much you get from your guaranteed income annuity depends on many different factors though including how much you invested in the first place.
This guide will cover how much you can expect to receive from your guaranteed income annuity based on many different factors.
How Annuities Work
Let’s say you purchase an annuity for $50,000 and you want to start getting payments at the age of 70 for the rest of your life. This means you will make a single payment of $50,000 and the insurance company will begin issuing you payments at the age of 70 every month for the rest of your lifetime.
This is a basic annuity and is deferred because you are stating that you want to start getting payments at the age of 70 regardless of the age you are now.
There are also immediate annuities that you can purchase and then start getting payments as soon as the next month.
If you are already close to retirement age, this could be a good choice, but most investors and financial advisors will recommend you get a deferred annuity so that it has time to collect interest and make your final monthly payments much larger.
Guaranteed Income Annuities
A guaranteed income annuity means that you are getting income payments guaranteed for your lifetime. You will purchase the annuity with one single lump sum. Some companies also allow you to make payments over a set period of time but you want to make sure these premium monthly payments are finished before you are set to start receiving the income payments.
Once you reach the age you agree to start getting payments at, you will get payments for the rest of your life. Each company is different, but most will give out monthly payments in the form of direct deposit to your bank or as a check in the mail.
Some companies don’t give out monthly payments though so you might get your payment annually, quarterly, or semiannually.
Rate of Return
Income annuities are different and sometimes hard to calculate the rate of return because they do not offer return rates like CDs. Instead, you will get income at a fixed rate for the rest of your life.
The payment you receive is not based on market performance so you are guaranteed to get the same payment no matter the current financial or market situation.
Original Investment
Obviously, the more you purchase the annuity, the more income you will receive. No matter how much you originally invest, most annuities give a rate of return somewhere between 5% to 6% but the exact percentage will depend on the company you invest in.
Your investment also collects interest the longer you leave it untouched. So, someone who defers their $50,000 annuity for 20 years at an interest rate of 5% will get higher monthly payments compared to someone who only defers their $50,000 annuity for 10 years.
Let’s look at another example at a higher number. Let’s say you are able to pay a lump sum of one million dollars into an annuity. You then say you want to start collecting the payments when you retire at the age of 70.
With the rate of return being somewhere between 5% to 6%, you can expect to receive somewhere between $4,500 to $6,500 per month.
However, this is a ballpark number. Without knowing the terms of the contract and if you have added any riders, it can be hard to determine the exact monthly payment you plan to receive.
Rate of Return and Lifetime Annuities
It can be hard to determine the rate of return for a lifetime annuity because they are not for a fixed period of time.
You also want to be sure you are reading the rate of return correctly because sometimes they are not correctly advertised. For example, there are some high-interest accounts that claim they give a 10% interest. However, you only get this high interest if there is an income rider.
When there is an income rider, you are only getting the interest payments. This means you might not get the principle back so your monthly payments will be much smaller than anticipated.
This is why it’s always important to read the fine print of your annuity contract before you sign it or agree to anything.
Tips for Receiving the Most Money
Annuities can be a great investment to add money to your retirement, but you need to make sure you pick the right one or you will find that you’re not getting as high of a payment as you might have expected at the beginning.
Finding an advisor or someone else who has invested will help you to make sure you choose the right annuity that can bring you the most amount of money.
You can also use an annuity calculator to see how much you might be collecting in interest adding in the principle to then see how much you will be collecting each month. This way you can decide if the amount is right for you or if you need to make a larger investment.
The Bottom Line
Exactly how much you will receive from your annuity contract is hard to say without looking at the contract and knowing the riders and benefits you might have added to the paperwork.
Keep in mind, that the more you add to the initial investment and the higher interest rate you are able to get, the more you expect your monthly payment to be.
Deferred annuities often get more monthly income because you allow the interest to be collected before making withdrawals.