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If you’re nearing retirement right now, you’re likely weighing options for turning your savings into reliable retirement income. The market has, after all, been anything but predictable recently, so your investment portfolio’s value has been fluctuating. And, despite inflation cooling from recent highs, the higher cost of living we’re facing today is still straining many retirees’ budgets. When you add in concerns over Social Security’s long-term solvency, it’s no surprise that people are turning to products like annuities for peace of mind.
An annuity can be a smart tool to consider for retirement because it provides guaranteed income for life, which is a big reason why more people are now adding them to their retirement plans, especially retirees who want more stability amid market swings. But figuring out exactly how much income an annuity will generate isn’t always a simple process. The answer depends on several factors, from your age and gender to the type of annuity you buy and what interest rates are at the time.
What is clear is that if you’re planning to buy an annuity this year, you’ll likely benefit from the current higher-rate environment. So, how much can you expect in monthly income from a $500,000 annuity if you buy it at age 65?
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How much will a $500,000 annuity pay monthly if bought at age 65?
Let’s start with the numbers. If you’re 65 and buy a $500,000 immediate fixed annuity today, your monthly income will vary depending on your gender and whether the annuity covers one or two people. According to recent estimates from Cannex data analyzed by Annuity.org, here’s what those monthly payments could look like:
- Male, age 65: Around $3,269 per month for life
- Female, age 65: Around $3,151 per month for life
- Joint life, age 65: Around $2,863 per month (payments continue as long as either person is alive)
These numbers reflect a lifetime payout starting immediately. So, if you were to hand over $500,000 to an insurance company today to open an immediate fixed annuity, you would receive that monthly income for the rest of your life, no matter how long you live.
The reason payouts differ between men and women comes down to life expectancy. Women tend to live longer, which means insurance companies expect to make payments for more years. To account for that, the monthly annuity payouts for women tend to be slightly lower than for men. Meanwhile, joint life annuities, which cover two people, typically a married couple, offer even smaller payouts, since payments are expected to last even longer.
But gender and payout structure aren’t the only factors at play. Here are a few others that influence your monthly annuity income:
The interest rate environment
One of the biggest drivers of annuity payouts is interest rates. That’s because insurance companies invest your premium in fixed-income assets, and the yield they earn helps fund your future payments. When rates are higher, annuity payouts tend to be more generous. On the flip side, lower interest rates generally mean smaller monthly checks.
In today’s rate climate, buyers are still seeing relatively strong payouts compared to what they would’ve locked in just a few years ago. But as the Federal Reserve looks toward possible rate cuts later this year, the window to lock in higher monthly annuity income may begin to shrink.
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The type of annuity
Not all annuities are created equal. The numbers above reflect a single premium immediate annuity (SPIA), which begins paying out right after purchase and offers a simple structure: You pay once and the insurer sends you monthly checks for life.
But there are other options. For example, deferred annuities start payments at a later date, which can result in higher income since your money has more time to grow. Variable and indexed annuities are tied to market performance, offering growth potential but less predictability. Lifetime annuities with a period certain (which provide guaranteed payments for a minimum number of years even if you die early) also come with tradeoffs, usually in the form of lower monthly payments in exchange for that added guarantee.
Payout features and inflation protection
Many retirees opt for added features like cost-of-living adjustments (COLAs) or refund guarantees, which help protect against inflation or ensure that your beneficiaries receive remaining funds. However, these features typically reduce your starting monthly payment. So while you might receive less per month initially, the long-term benefit could outweigh the upfront reduction, especially if you live a long life or want to leave something for beneficiaries.
Should you buy an annuity now or wait?
If you’re eyeing an annuity but aren’t quite ready to act, timing could be a big consideration. While rates are still relatively high, any forthcoming Federal Reserve rate cuts could reduce future annuity payouts. So, it could make sense to make your move now and lock in a good rate. On the other hand, if you’re still a few years from retirement and can wait, a deferred annuity could boost your income later, though that comes with the risk of shifting market conditions.
One option that’s nearly always worth exploring, though, is shopping around for quotes. Annuity pricing can vary widely between insurance companies, and working with a broker or using online marketplaces can help you compare your options side-by-side. You might also consider splitting your savings into multiple annuities or combining an annuity with other retirement income sources, like Social Security or a 401(k), to build a more flexible income plan.
The bottom line
A $500,000 annuity purchased at age 65 could generate between about $2,900 to $3,300 per month for life, depending on your gender and the payout structure. That kind of consistent income can offer peace of mind, especially in uncertain economic times.
Still, annuities aren’t for everyone. Whether a $500,000 annuity makes sense for you depends on factors like your retirement goals, health, risk tolerance and income needs. Before buying, though, it’s a good idea to compare multiple quotes. And if you’re planning to buy soon, don’t wait too long, as the current rate environment may not last much longer.
