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With inflation cutting into household budgets and market volatility making portfolios feel less predictable, many soon-to-be retirees are looking for new ways to create financial stability. One option that’s getting more attention lately is turning a portion of your savings into a steady, guaranteed income stream through a fixed annuity. With an annuity, you pay a lump sum upfront to an insurance company in exchange for regular monthly payments for life, regardless of how long you live or what happens in the stock market.
And, thanks to today’s higher interest rate environment, the timing couldn’t be better for those considering annuities. The elevated rate environment means insurance companies can offer more attractive monthly payouts than they could during the prolonged period of near-zero rates. This makes purchasing an annuity particularly appealing right now, as you’re able to lock in these more favorable rates and potentially maximize your lifetime income benefit.
If you’re able to lock in today’s high rates on a sizable annuity — let’s say $400,000 — that move could provide real peace of mind, too. But how much income does that actually buy you? If you’re 65 and considering a fixed annuity, here’s how much you could expect to receive each month.
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How much will a $400,000 annuity pay monthly if bought at age 65?
If you’re considering investing $400,000 in an immediate fixed annuity at age 65, you can generally expect to receive substantial monthly payments, but those will vary based on your personal circumstances. To give you a better idea of what the payouts could look like, though, here’s what you might earn each month from a $400,000 annuity purchased at age 65, according to an analysis of Cannex data by Annuity.org:
- Male, age 65: Approximately $2,590 per month
- Female, age 65: Approximately $2,482 per month
- Joint-life at age 65: Approximately $2,246 per month
Here’s where things get interesting, though: Those monthly checks aren’t set in stone. They’re shaped by several key factors, like:
Gender and life expectancy
Gender and life expectancy play a crucial role in determining your monthly payout. For example, women typically receive lower monthly payments than men of the same age because women tend to live longer. And, since insurance companies expect to make payments for a longer period to women, they adjust the monthly amount downward to account for this extended payout period.
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Interest rate environment
Insurance companies invest your premium in bonds and other fixed-income securities, so when interest rates are higher, they can generate better returns on your money and pass along higher monthly payments. Today’s relatively elevated rates mean current annuity buyers are seeing more attractive payouts than those who purchased annuities during the low-rate environment.
Annuity type and structure
The type of annuity structure you choose also affects your monthly income. For example, a single life annuity provides the highest monthly payment but stops when you die. A joint life annuity, on the other hand, continues payments to the surviving spouse but offers lower monthly amounts because the insurance company expects to make payments over two lifetimes instead of one.
Optional features
Any additional features and riders you choose for your annuity can reduce your base monthly payment but may, in turn, provide valuable benefits. Cost-of-living adjustments, for example, can help your payments keep pace with inflation, while guaranteed minimum payout periods ensure your beneficiaries receive some benefits even if you die early. Each of these features comes at a cost that reduces your initial monthly payment.
Is a $400,000 annuity right for your retirement strategy?
Determining whether a $400,000 annuity makes sense requires consideration of your overall financial picture and retirement goals. This substantial investment could provide excellent value for the right person but it may not be suitable for everyone.
That said, the guaranteed monthly income represents a significant benefit for those prioritizing financial security over maximum returns. Unlike investment accounts that fluctuate with market conditions, your annuity payments remain constant regardless of economic turbulence. This predictability can be invaluable for covering essential expenses like housing, healthcare and daily living costs.
However, annuities come with important trade-offs. Once you purchase an immediate annuity, your $400,000 is no longer liquid or accessible for emergencies. You also give up the potential for higher returns, which stocks or other investments might provide. And, unless you choose inflation protection features, your fixed monthly payments will lose purchasing power over time.
The decision becomes more compelling if you’re in good health and expect a long retirement. The longer you live, the more total income you’ll receive from your annuity, potentially far exceeding your initial $400,000 investment.
The bottom line
A $400,000 annuity purchased at age 65 can provide substantial monthly income ranging from approximately $2,246 to $2,590, depending on your gender and the payout option you choose. This guaranteed income stream could form a solid foundation for your retirement plan, especially when combined with Social Security benefits and other retirement savings.
The current interest rate environment also makes this a particularly attractive time to consider an annuity purchase. However, this significant financial commitment requires careful consideration of your overall retirement strategy, health status and need for liquidity. So, before making this decision, be sure to do your research and ensure an annuity fits well within your broader retirement income plan.
