Your growth, payout and scenarios — in full

I built this part so you can see the whole journey of your money, not just the headline numbers. The chart shows your balance rising while you save and falling while you are paid. The table below it is the year-by-year record. The scenario table shows what happens if the rate comes in one point lower or one point higher than you assumed — because it never comes in exactly as assumed.

Year-by-year schedule

What if the rate is different?

What an annuity is, in my words

I think of an annuity as a private pension you buy for yourself. You give money to a life insurance company, and in return the company promises you a stream of payments. That is the whole idea, and everything else — the types, the riders, the tax rules, the forty-page contract — is detail hung on that one promise. When I explain annuities to someone for the first time, I start there, because the sales material usually starts somewhere else: with a rate, or a bonus, or a picture of a couple on a beach. The rate matters, but the promise matters more, and the promise is only worth what the company behind it is worth.

An annuity has two phases, and I find it helps to keep them separate in your head. The first phase is accumulation: your money sits with the insurer and, depending on the type, earns a declared rate, follows an index, or rides the market through subaccounts. The second phase is distribution, sometimes called annuitization: you convert some or all of the accumulated value into regular payments. Some annuities never reach the second phase in the way people imagine — you can withdraw from a deferred annuity without formally annuitizing, and many people do. But the income guarantee that makes annuities different from a savings account only switches on when you annuitize, or when a guaranteed lifetime withdrawal rider switches on. Before that, you mostly hold a tax-deferred savings contract with an insurance wrapper, and I think you should judge it as one.

The word itself is old. Annuities in one form or another go back to Roman times, and the single premium immediate annuity — money in, monthly income out, starting right away — is the oldest and simplest member of the family. I mention that history for one reason: the simplicity of the immediate annuity is a feature, not a limitation. It does one job, it does it in the open, and its price is easy to compare across companies. Much of the trouble in this market comes from products that try to do five jobs at once, with a fee for each.

I also want to be plain about what an annuity is not. It is not a bank deposit, and it is not covered by FDIC insurance. Guarantees are backed by the claims-paying ability of the issuing insurer, which is why I check an insurer’s financial strength ratings and the rules of my state’s guaranty association before I take any guarantee seriously. State guaranty associations do exist, and they do provide a backstop if an insurer fails, but their coverage limits vary by state and by type of contract, and they are not the same promise as federal deposit insurance. I treat an annuity guarantee as strong but not absolute, and I never put all of my retirement money into one insurer’s promise.

Finally, I should say who this page is for. I wrote it for a United States reader who is either saving for retirement and wondering whether an annuity belongs in the plan, or already retired and wondering what a lump sum would buy as monthly income. I use dollars throughout, I use United States tax rules, and where a rule differs by state I say so. If you live outside the United States, the product names will sound familiar but the tax and consumer-protection rules will not match, and you should not rely on this page for them.

How annuity payments are calculated

Here is the part I most want you to understand, because once you can do this maths yourself, no salesperson can mystify you with it. For a fixed payout period — say, twenty years — the payment is the amount that, discounted at your assumed rate, adds back up to exactly the value you start with. Every payment returns a slice of your original money plus the interest that slice earned while it waited its turn, and by the final payment the balance is zero. The formula is:

I will walk through the example I use most. You have $100,000, it is credited at 5% a year, and you want monthly payments over 20 years. That is 240 payments at a monthly rate of 0.4167%. The formula gives about $660 a month. Over twenty years you collect about $158,389, of which about $58,389 is interest credited to your shrinking balance along the way. I checked that arithmetic with this calculator: $100,000, no contributions, 5%, zero years of growth, twenty payout years, monthly. Try it yourself — change the rate to 6% and the payment rises to about $716, change it to 4% and it falls to about $606. The rate is the lever, and a one-point move in the rate is worth roughly $55 a month on $100,000 over twenty years. That is why I tell people to shop the rate and the insurer, not the brochure.

The growth side uses the mirror-image maths. A lump sum grows by compound interest: $100,000 at 5% a year, compounded monthly, becomes about $164,701 after ten years. A monthly contribution grows by the future value of an annuity formula: $500 a month at 5% for twenty years becomes about $205,517, of which $120,000 was your contributions and about $85,517 was growth. The calculator above does both pieces and then feeds the grown value into the payout formula, so the number you see as your monthly payment already includes the growth you earned while you waited. If you set the growth years to zero, you get the pure payout calculation. If you set the starting amount to zero and type in a monthly contribution, you get the pure saver calculation. I built it that way so one tool answers both questions.

Two details in my calculator deserve your attention. First, I assume contributions are made at the end of each month and payments are made at the end of each period. That is the ordinary-annuity convention, and it is the conservative one: money paid at the start of a period (an annuity due) would pay very slightly more, because each payment is discounted by one period less. Second, I use the same net rate for growth and for payouts. A real insurer does not promise you the same credited rate forever — a fixed annuity guarantees a rate for a term, often three to ten years, and then the rate resets — so treat any long payout projection as an illustration at a constant rate, not as a contractual promise.

This table is a twenty-year, monthly, period-certain payout at a constant rate, calculated with the formula above. I include it because it answers the most common question I get in one glance: roughly, what does my balance buy? Notice that the payment scales exactly with the lump sum — double the money, double the payment — but it does not scale with the rate in the same simple way, because the rate also changes how fast the remaining balance earns while it is being paid out. Notice too what the table is not: it is not a lifetime payout, and it is not a quote. A lifetime payout for a 65-year-old will look different, because the insurer is pricing your life expectancy, not a twenty-year calendar. I cover that difference in the next sections, and I give you a dated real-world survey figure so you can see how far the simple formula is from an actual market quote.

The types, compared honestly

I group annuities into five families, and I judge each one by the same four questions: what does it promise, what can it lose, what does it cost, and how hard is it to get my money back? If a product cannot answer those four questions in plain language, I do not buy it, and I suggest you hold the same line.

Fixed annuities and MYGAs

A fixed annuity credits a declared interest rate for a set period, typically three to ten years, and the insurer bears the investment risk. A multi-year guaranteed annuity, or MYGA, locks in that rate for the full term — three, five, or seven years are common — and it behaves a lot like a bank certificate of deposit, except that the growth is tax-deferred and the guarantee comes from an insurer rather than a bank. There are usually no explicit annual fees in a fixed annuity; the insurer earns the spread between what your money earns for it and what it credits to you. The cost shows up instead as a surrender charge if you withdraw more than the contract allows before the term ends, and as the risk that the renewal rate, when the term ends, is lower than the rate you started with. I like fixed annuities for money I know I will not need before the term ends, and I dislike them for money I might need next year.

Fixed indexed annuities

A fixed indexed annuity, or FIA, credits interest based on the movement of a market index — the S&P 500 is the usual example — with a floor that protects your credited value in a down year. The index is a measuring stick, not an investment: you do not own the index, you do not receive its dividends, and your credit is limited by a cap, a participation rate, or a spread, or sometimes by more than one of those at once. A common pattern in recent contracts is a cap somewhere between 5% and 10% and a participation rate between 60% and 100% of the index gain, which means that in a year the index rises 22%, you might be credited 8%. That is the trade for the zero floor, and it is a fair trade only if you understand it before you sign. I find indexed annuities the hardest family to compare, because two contracts tracking the same index can credit very differently once caps, participation rates, and crediting methods are taken into account. I never compare them on the index name alone; I compare them on the crediting method, the cap, the participation rate, the surrender schedule, and the rider fees, in writing.

Variable annuities

A variable annuity invests your premiums in subaccounts that work like mutual funds, so your account value rises and falls with the market, and you bear the investment risk. What the annuity wrapper adds is tax deferral, a death benefit, and the option to buy riders — guaranteed lifetime income, guaranteed minimum income, or an enhanced death benefit — at an extra annual charge. The fee stack is the story here. The mortality and expense charge is commonly around 1.25% a year, subaccount fund expenses add roughly 0.5% to 1.5%, a living-benefit rider adds roughly 0.5% to 1.5%, and a flat administrative fee of $25 to $50 a year may sit on top. A contract with a guaranteed income rider can easily cost more than 3% a year in total, which means the underlying investments must clear 3% before you earn anything at all. I am not against variable annuities in principle — for a long-horizon investor who genuinely wants a guaranteed income rider and understands the cost, the rider can be the whole point — but I am against buying one inside an IRA for the tax deferral alone, because an IRA already gives you tax deferral for free, and the wrapper then costs you money for a benefit you already had. The United States Securities and Exchange Commission makes the same warning in its investor guidance on variable annuities, and I think it is worth repeating here.

Immediate annuities (SPIAs)

A single premium immediate annuity converts a lump sum into guaranteed payments that start within about a year, usually within thirty days. There is no accumulation phase and no investment decision for you to make: you hand over the premium, and the cheques start. There are no ongoing annual fees in the usual sense, because the price of the guarantee is baked into the payout rate itself. This is the annuity I find easiest to shop, because the comparison is a single number — how much a month, for how long, from which insurer — and I can get competing quotes on identical terms. It is also the annuity that demands the most care about the payout option, because once payments begin you generally cannot get the lump sum back. I cover that choice in the next section, and I think it deserves more of your time than the choice of insurer.

Deferred income annuities and QLACs

A deferred income annuity, or DIA, takes your premium now and starts income at a future date you pick, five to twenty years out. Because the insurer holds your money during the deferral and because some buyers will not live to the start date, the future monthly payment is larger than the same premium would buy as an immediate annuity at that future date. People sometimes call this longevity insurance, and I think that is the right frame: you are buying income for your eighties, when you most fear running out. The qualified version, the QLAC, lives inside an IRA or 401(k), can start as late as age 85, and is excluded from the balance used to calculate required minimum distributions, up to a premium limit of $210,000 for 2026 under IRS Notice 2025-67, indexed over time. The old rule that capped QLAC premiums at 25% of the account was removed by the SECURE 2.0 Act. I cover QLACs again under tax and RMDs, because that is where they earn their keep — and where they can also disappoint, if the later, larger payments push you into a higher bracket than the RMDs they replaced.

I built this table from the design of each family, not from any one contract, and individual contracts vary widely. Verify every feature in the contract itself, in the prospectus where one is required, and in the insurer’s written illustration. If a feature is not in writing, I treat it as not promised.

Payout options: the choice that changes everything

When you annuitize, you choose how the payments are shaped, and that shape is usually permanent. I spend more time on this choice than on any other, because the difference between the options is not a detail — it is the difference between the largest possible cheque and the cheque that still arrives for your spouse after you are gone.

Life only, sometimes called straight life, pays you for as long as you live and stops when you die, even if you die a month after payments begin. It pays the most per month, because the insurer keeps the remaining value of the people who die early and uses it — through what actuaries call mortality credits — to pay the people who live long. That is the mechanism that makes lifetime income possible at all, and I think it is worth understanding rather than fearing: you are pooling longevity risk with strangers, and the pool pays the survivors. But life only leaves nothing behind from that premium, and for most couples and most people with dependants, I find that unacceptable as a default.

Period certain adds a guarantee period — commonly ten or twenty years — during which payments continue to a beneficiary even if you die. A life annuity with a ten-year period certain pays slightly less each month than life only, because the insurer has promised at least ten years of payments whatever happens. A twenty-year period certain pays less again. The calculator above uses a period-certain payout, because period-certain maths is the maths I can show you exactly; a lifetime payout needs a mortality table as well as an interest rate, and no single table is the right one for every insurer and every buyer.

Joint and survivor pays for two lives — usually a married couple — and continues, in full or at a reduced percentage such as 50% or 75%, to the survivor after the first death. It pays less than a single-life annuity on the same premium, because the insurer expects to pay for longer, across two lives. I regard joint and survivor as the default for a couple whose retirement income depends on the annuity, and I would want a specific, written reason to choose anything else. The related choice is the refund option: cash refund or instalment refund guarantees that if you and your spouse both die early, your beneficiary receives at least the premium minus payments already made, as a lump sum or as continued payments. Refund options cost a little each month, and they buy a lot of peace of mind for people who cannot bear the thought of a large premium vanishing early.

Two more payout details matter. First, inflation protection: some contracts offer payments that rise by a fixed percentage each year, commonly 2% or 3%, or that track an inflation index. Rising payments start lower than level payments on the same premium, and the crossover — the age at which the rising payment passes the level one — can be a decade away. I model this in the inflation section, because it is the single most underestimated decision in the whole purchase. Second, the payment start: payments at the beginning of each period pay slightly more in present-value terms than payments at the end, and the contract should say which it uses. Ask, and get it in writing.

My rule of thumb, which I offer as a starting point and not as advice for your household, is this: if the annuity is meant to cover essential spending — housing, food, insurance, property taxes — I choose a payout shape that survives the first death and keeps up, at least partly, with inflation. If the annuity is a small supplement and the household has other guaranteed income, I am more willing to trade those protections for a larger cheque. Either way, I make the choice on purpose, with the monthly amounts for each option side by side, and I never let a salesperson choose the shape for me by quoting only the largest number.

What $100,000 actually buys in 2026

I promised you a real-world figure, and here it is, with its date and its limits attached. In a quote survey run for real clients and checked on 1 October 2026, a 65-year-old man investing $100,000 in a single premium immediate annuity — single life, with a five-year period certain — was offered between $573 and $693 a month, depending on which of eight published carriers he picked. A 70-year-old was offered more, between $654 and $767 a month, because the insurer expects to make fewer payments. Those figures come from LifeAnnuities.us survey runs between July and September 2026, and I quote them as a survey of what was offered then, not as a price you can claim today. Rates move with interest rates, with the insurer’s own pricing, and with your age, sex, state, and payout option, and a quote you get tomorrow will differ.

Now compare that survey with the simple formula on this page. At 5% over twenty years, $100,000 pays about $660 a month, which sits inside the survey range for a 65-year-old man — but the comparison is not exact, and I do not want you to treat it as one. The formula assumes a fixed twenty-year payout and a constant 5% rate. The survey quotes are lifetime payouts priced from mortality tables, insurer expenses, and the insurer’s own investment portfolio, with a five-year minimum guarantee. The fact that they land in the same neighbourhood tells me the formula is a useful sanity check, not that it replaces a quote. If a quote comes back far outside the formula’s neighbourhood — say, $450 or $850 a month on the same $100,000 for the same terms — I ask what is different: the payout option, the guarantee, the insurer, or the assumptions hidden in the illustration.

For deferred growth, I use a dated range rather than a single rate. Competitive multi-year guaranteed annuity rates from A-rated carriers commonly ranged from roughly 5.0% to 6.5% in September 2026, depending on term and insurer, with top offers occasionally higher, according to a September 2026 market summary. I give you that range so you can judge whether a rate you are offered is in the market or below it, and I repeat the warning that comes with it: rates move with the Federal Reserve’s target rate and change frequently, so get a current quote rather than relying on a published range, including this one. When you use the calculator above, type in the rate you have actually been offered, not a rate you remember reading. The default of 5% is a starting assumption, nothing more.

One more reality check I run on every quote is the age effect. Every year you wait to buy a lifetime annuity, the monthly payment on the same premium rises, because the insurer expects fewer payments. That rise is the other side of the risk: if you wait from 65 to 70, you collect nothing for five years, and the larger cheque has to make up for five years of missed income. Whether waiting wins depends on how long you live, on what the money would have earned meanwhile, and on whether you need the income now. I do not try to settle that question with a slogan. I settle it with the calculator, the quote, and a spreadsheet that counts total income received at ages 80, 85, and 90 under each option. I show you that method in the worked examples.

Tax: qualified, non-qualified, and the exclusion ratio

Annuity tax in the United States turns on one distinction, and I want you to hold it clearly, because it changes every number that follows. A qualified annuity is funded with pre-tax money inside a retirement account — a traditional IRA, a 401(k), a 403(b). A non-qualified annuity is funded with after-tax money from your savings, outside a retirement account. Growth in both is tax-deferred: you pay no annual tax on the earnings while they accumulate. The difference arrives when the money comes out.

Qualified money comes out fully taxable as ordinary income, because it has never been taxed. Every dollar you withdraw, and every dollar of income payments, is added to your taxable income for the year. There is no tax-free portion, no exclusion ratio, and no capital-gains treatment. Qualified annuities inside IRAs and other qualified plans are also subject to required minimum distributions, which I cover below. Non-qualified money is different, because you already paid tax on the principal you put in. Only the earnings are taxed, and how they are taxed depends on whether you have annuitized.

Before annuitization, non-qualified withdrawals follow the last-in, first-out rule: earnings come out first and are taxed as ordinary income, and you do not reach your tax-free return of principal until all the gains are withdrawn. I will give you the example I use when I explain this, because it surprises people. You put $100,000 into a non-qualified annuity, it grows to $130,000, and you withdraw $20,000. The whole $20,000 is taxable, because it comes from the $30,000 of earnings first. Only after you have withdrawn all $30,000 of earnings do later withdrawals become a tax-free return of your original $100,000. That ordering is why partial withdrawals from a deferred non-qualified annuity are a poor way to take income, and why annuitizing — or using a rider that pays income — often treats you better.

Once you annuitize a non-qualified contract, the Internal Revenue Service spreads your tax-free return of principal across every payment using the exclusion ratio. The ratio is your investment in the contract divided by the expected total return over the payout period, based on IRS life expectancy tables. Suppose you annuitize a $120,000 contract with a $90,000 basis: the exclusion ratio is 75%, so 75% of each payment is a tax-free return of basis and 25% is taxable, until you have recovered your full basis, after which every payment becomes fully taxable. The ratio stays constant for the life of the payment stream, which is the point: annuitization softens the tax hit compared with lump-sum withdrawals, because you get basis back with each cheque instead of waiting until all the gain is drained. For qualified annuities held inside a retirement plan, the IRS generally requires the Simplified Method rather than the General Rule for the tax-free portion, and the details live in IRS Publication 575, Pension and Annuity Income, and Publication 939, General Rule for Pensions and Annuities. I cite those two publications by name because they are the authoritative sources, and I suggest you read them — or have your tax preparer read them — before you annuitize a qualified contract.

The early-withdrawal penalty is the next rule I never skip. Taxable distributions from an annuity before age 59 and a half may owe an additional 10% federal penalty on top of ordinary income tax, under Internal Revenue Code sections 72(q) and 72(t). The exceptions include death, disability, substantially equal periodic payments, and certain immediate annuity payments, but the exceptions are narrow and fact-specific. For a non-qualified annuity, the penalty applies only to the taxable portion — the gain — not to the return of your own principal, although the last-in, first-out rule means the gain usually comes out first anyway. I treat 59 and a half as a hard line in planning: money I might need before then does not go into an annuity with a surrender schedule that runs past it.

Required minimum distributions deserve their own paragraph, because they are where annuities and retirement accounts collide. Qualified annuities held inside IRAs or other qualified plans are subject to RMDs starting at age 73 for people born from 1951 through 1959, and at age 75 for people born in 1960 or later, under the SECURE 2.0 Act. The annuity value is included in the RMD calculation for the account that holds it, unless the annuity is a QLAC. QLAC premiums are excluded from the RMD balance up to the $210,000 limit for 2026, and QLAC income can start as late as age 85. Once a qualified annuity is annuitized, the income payments themselves generally satisfy the RMD requirement for the amount held in that annuity, and you do not take a separate RMD from it as well. A missed RMD carries an excise tax of 25% of the shortfall, reduced to 10% if corrected within the allowed window and reported on Form 5329. Non-qualified annuities have no RMD schedule during your lifetime. I state these ages and figures as the law stood in late 2026; tax law changes, and I check IRS guidance for the year in which I act, not the year in which I read about it.

Two final tax cautions, both easy to miss. First, annuity distributions are ordinary income, not capital gains, so they do not get the lower long-term capital gains rates that a taxable investment account might. A large distribution can also push you into a higher bracket, affect the taxation of Social Security benefits, and, for higher earners, interact with the 3.8% net investment income tax, whose thresholds are $200,000 of modified adjusted gross income for single filers and $250,000 for married couples filing jointly. Second, state tax follows state law: most states tax annuity income as ordinary income, a few do not, and the treatment of a lump sum versus a stream can differ. I do not give state-by-state tax advice on this page. I tell you to run your own numbers, in your own state, with your own preparer, before you choose between a lump sum and a stream.

Fees and surrender charges

I have already told you that fees are where annuities quietly fail, and now I want to show you the mechanism, because a fee that sounds small — one percent, one and a quarter percent — compounds against you exactly as surely as a return compounds for you. The fee stack I describe here is the variable annuity stack, because that is where the layers are thickest, but the lesson applies to every family: find every charge, add them up, and ask what return the product must earn before you earn anything.

The layers, with the typical ranges I find in SEC investor guidance and in contract disclosures, are these. The mortality and expense risk charge, which pays for the insurer’s guarantee obligations and its profit margin, is commonly around 1.25% of account value a year in a variable annuity, although some contracts charge less and some more. Administrative fees run to a flat $25 to $30 a year, or roughly 0.15% of account value. The subaccount fund expenses — the mutual-fund-like charges inside the variable annuity — add their own expense ratios on top, commonly 0.5% to 1.5% a year. Optional rider fees, for guaranteed lifetime income or an enhanced death benefit, commonly add 0.5% to 1.0% a year, and sometimes more. Add a 1.25% mortality charge, a 0.90% average fund fee, and a 1% income rider, and you reach 3.15% a year in total ongoing charges before any surrender fee. Over a twenty-year accumulation period, that drag can amount to tens of thousands of dollars compared with lower-cost alternatives, and it is the main reason I insist on seeing the all-in cost in writing, as a single percentage, before I compare any variable annuity with anything else.

Fixed and indexed annuities look cheaper, and in explicit fees they usually are. A fixed annuity often has no explicit annual fee at all, because the insurer’s costs are built into the guaranteed rate it offers you — a lower credited rate is the fee, in effect. An indexed annuity’s cost is the cap, the participation rate, and the spread: the index gain you do not receive is the price of the floor. I do not call that free. I call it a cost paid in forgone upside, and I judge it by asking what I gave up in the years the index rose strongly, not only by asking what I was protected from in the years it fell.

Surrender charges are the other cost, and they are the one that locks you in. If you withdraw more than the penalty-free amount during the surrender period, the insurer takes a percentage of the withdrawal, commonly starting at 7% to 10% in the first year and declining by about a percentage point a year until it reaches zero, over a period that commonly runs seven to ten years and occasionally twelve. Most contracts allow an annual free withdrawal, often 10% of the account value, but the amount and the conditions vary, and each new purchase payment may start its own surrender clock. Exchanging one annuity for another starts a new clock from scratch, which is why I treat every exchange proposal with suspicion until someone shows me, in numbers, that the new contract is better enough to pay for a fresh surrender period. Commissions are the related fact I want you to know: insurance agents are paid a commission when they sell an annuity, and commissions can run to 5% to 8% of the premium, and in some cases up to 10%. The commission is not usually charged to you directly, but it is paid out of the product’s economics, and it is a reason to ask who is recommending this contract and what they earn if you buy it.

My practical test is simple, and I use the calculator at the top of this page to run it. Type in the rate you have been offered, then type in the all-in fee as the fee input, and read the payout. Then set the fee to zero and read it again. The difference is what the fees cost you in monthly income, forever, for as long as the payout lasts. If that difference is larger than the value of the guarantee you are buying, I walk away, or I buy the simpler product.

Inflation: the quiet cut

Of all the risks in this purchase, inflation is the one I see underestimated most, because it never sends a bill. A level payment feels like a promise kept: the same cheque, every month, for twenty years. But the cheque is not the same purchase. At 3% inflation, a $600 monthly payment at age 65 buys roughly $332 of today’s goods by age 85 — about half its purchasing power gone while the cheque stays exactly the same. I did that division with the calculator’s own logic, and I want you to feel the weight of it before you choose a level payment for a lifetime: a guarantee that ignores inflation is a guarantee that shrinks, politely, every year.

The remedies are real, and each has a price. A contract with payments that rise by a fixed percentage — 2% or 3% a year — starts lower than a level contract on the same premium, and the crossover point, where the rising payment passes the level one, can be ten or more years away. An inflation-indexed payment, where it is offered, tracks a price index and costs more still. A different remedy is to annuitize only part of your money, and to keep the rest invested in assets that have historically outpaced inflation, accepting that the invested part can fall. I favour the partial approach for most people, because it keeps the essential-spending floor guaranteed while leaving growth in the portfolio. But I do not pretend it is free of risk either: the invested part must actually grow, and in a long flat market it may not.

I also think about inflation when I choose the deferral. A deferred income annuity bought at 65 that starts paying at 85 buys its income with today’s dollars, and the insurer prices the deferral accordingly, but the income that starts at 85 will buy less than the same nominal income would buy today. That does not make the DIA a bad purchase — longevity insurance is worth buying precisely because the risk it covers is catastrophic — but it does mean I compare DIA quotes on the income they will pay in the year they start, deflated back to today’s dollars at an inflation assumption I choose myself, not at zero. The calculator above now shows the inflation-adjusted picture directly: the Advanced options panel has an inflation assumption, and the result card shows your payment in today’s dollars at that assumption. If you want the same picture for a quote from any other company, take the monthly payment it gives you and divide it by 1.03 raised to the number of years until you receive it, for a 3% assumption, and read the result as today’s purchasing power.

Annuity vs CD, bond ladder, and staying invested

I never judge an annuity alone. I judge it against the thing I would do with the money instead, because the right answer is always comparative, and the annuity industry’s habit of comparing its products with doing nothing is not a comparison at all. The three alternatives I compare against most are a bank certificate of deposit, a bond ladder, and staying invested in a diversified portfolio and withdrawing from it.

A certificate of deposit is the closest cousin of a fixed annuity. Both promise a rate for a term, both penalise early withdrawal, and both are simple to understand. The differences are the wrapper: the CD is FDIC-insured up to the legal limit, the annuity’s guarantee comes from the insurer; the CD pays tax on its interest each year, the annuity defers tax until withdrawal; the CD’s term is usually months to five years, the annuity’s term is usually three to ten years, and the annuity can be converted into lifetime income, which the CD cannot. In September 2026, competitive MYGA rates were in roughly the same neighbourhood as top CD rates, and I would choose between them on the tax position, the term, and the insurer-versus-bank guarantee, not on a headline rate alone. If I need the money within the term, I choose the CD. If I want tax deferral and a longer guaranteed rate, and I trust the insurer, I consider the MYGA.

A bond ladder — buying individual bonds or Treasury securities that mature in successive years — gives me something an annuity cannot: my principal back, in pieces, on dates I choose, with no surrender charge and no insurer in the middle. United States Treasury securities carry the full faith and credit of the United States government, and a ladder of them can fund a decade or more of spending with high certainty. What a ladder cannot give me is lifetime income: when the last bond matures, the money is gone, and if I live longer than the ladder, I must build another one with whatever rates then prevail. I think of the ladder as the right tool for a known horizon — ten years, fifteen years — and the annuity as the right tool for the unknown horizon after it. Many of the plans I respect use both: a ladder for the first decade of retirement, and a deferred annuity that starts when the ladder ends.

Staying invested — keeping the money in a diversified portfolio of stocks and bonds and withdrawing a planned percentage each year — has the highest expected return of the three alternatives, and the highest uncertainty. The 4% withdrawal rule, and its more careful modern variants, are attempts to make that uncertainty manageable, but no withdrawal rule can promise that the money will last as long as you do, because markets do not promise that. The annuity’s unique contribution is the mortality credit: the pooled longevity risk that lets a lifetime annuity pay more, per dollar, than a safe withdrawal from the same portfolio, for the people who live longest. I pay for that with the money I leave behind if I die early, and with the flexibility I give up. Whether that trade is worth it depends on how much of my essential spending is already covered by Social Security and any pension, on how long I expect to live, and on how I feel about leaving money behind. I do not answer those questions for you. I give you the framework I use to answer them for myself, and I ask you to run the numbers for your own household.

Who should, and who should not, buy one

I am often asked whether annuities are good or bad, and I refuse the question, because it is the wrong shape. The right question is whether an annuity does a job that nothing else in your plan does, at a price you are willing to pay, with money you will not need back. I use a checklist, and I suggest you use it too, in writing, before you meet any salesperson.

An annuity makes the most sense to me when three conditions hold together. First, you have a gap between your essential spending and your guaranteed income — Social Security plus any pension — and that gap worries you. Second, you have money you can genuinely set aside: money you will not need for an emergency, a house repair, or a family obligation during the surrender period. Third, you value certainty over flexibility for that slice of money, and you understand that the certainty is bought by giving up access and, in a lifetime contract, by giving up the possibility of leaving that slice behind. A retiree with $250,000, no pension, and $2,000 a month of essential spending that Social Security does not cover is the classic case. A saver of 45 who has maxed out a 401(k) and an IRA and wants another tax-deferred vehicle, with a long horizon and a clear understanding of the fee stack, is a second, narrower case.

An annuity makes the least sense to me when any of these hold. You need the money soon, or might. You are buying a variable annuity inside an IRA for tax deferral you already have. You are buying a complex indexed annuity you cannot explain back to me in two sentences. You are exchanging an existing annuity, resetting a surrender clock, on the strength of a bonus or a higher illustrated rate that no one will put in a guaranteed column. You have high-interest debt, no emergency fund, or no health insurance, and the annuity premium would consume the money those problems need. You are being rushed, flattered, or frightened — told that rates will never be this good again, or that the market is about to collapse, or that this product is only available this week. Pressure is information, and the information is that you should leave.

I also pay attention to age and health, honestly and without sentimentality. A lifetime annuity is priced on life expectancy, so a person in poor health will usually get a poor deal from a life-only contract, because the insurer’s pricing assumes an average lifespan the buyer may not reach. A period-certain or refund option softens that, but it does not erase it. Conversely, a healthy 65-year-old with long-lived parents is the person mortality credits reward most, because the pool pays the long-lived. I do not ask you to predict your own death. I ask you to be honest about your health, your family history, and your attitude to leaving money behind, and to let those answers shape the payout option, not the sales pitch.

How I would buy one in the USA, step by step

If I decided to buy, I would follow a slow, boring process, and I would not skip a step because a salesperson was charming. First, I would write down the job: how much monthly income I need, from when, for whom, and with what inflation protection. I would write down the money I can set aside without touching my emergency fund, and the date after which I will not need it back. I would decide the payout shape — joint, period certain, refund — before I asked for a single price, because a price without a shape is not comparable.

Second, I would get quotes on identical terms from at least three insurers, through at least two channels — a direct quote source and an independent agent or broker who can quote several carriers — and I would insist on the guaranteed columns, not the illustrated or non-guaranteed ones. I would check each insurer’s financial strength ratings from at least two rating agencies, such as A.M. Best, Moody’s, S&P, or Fitch, and I would look up my state’s guaranty association coverage limits and understand what they do and do not cover. I would read the contract, the prospectus where one is required, and the free-look provision: most states give you a free-look period, commonly ten days and sometimes longer, during which you can return the contract for a full refund, and I would mark that deadline in my calendar the day the contract arrives.

Third, I would take the contract to a second pair of eyes before the free-look period ends: a fee-only financial planner who does not earn a commission on the sale, or a tax preparer who can check the qualified-versus-non-qualified treatment and the RMD interaction. I would ask the seller, in writing, what commission they earn, what the surrender schedule is, what the free-withdrawal amount is, what happens to the death benefit, what the rider fees are, and what would have to happen for a guaranteed benefit to be reduced or lost. I would compare the total income at ages 80, 85, and 90 under each quote, not just the first year’s cheque. And I would wait a week after the last meeting before I signed. Annuities reward patience and punish haste, and a product that is genuinely right for you will still be right next week.

If something goes wrong — if you were sold a product you did not understand, if the contract does not match what you were told, or if you suspect an unsuitable recommendation — I would start with the insurer’s complaints process, then my state department of insurance, and, for a variable annuity, which is a security, the SEC and FINRA. The SEC and FINRA both publish investor guidance on variable annuities and on suitability, and FINRA Rule 2330 sets standards for recommended deferred variable annuity purchases and exchanges. I mention the regulators not to alarm you, but to remind you that you have somewhere to go, and that the existence of those rules is a reason to keep every illustration, every email, and every note from every meeting.

Three worked examples I use

Example one: the retiree with $250,000 and no pension

Imagine a 65-year-old with $250,000 in savings, no pension, and Social Security that covers most but not all of essential spending. She annuitizes the $250,000 over twenty years at an assumed 5%, monthly. The calculator gives about $1,650 a month, about $396,000 in total over twenty years, of which about $146,000 is interest credited while the balance is paid down. I would then ask her the payout-shape questions: does she need that $1,650 to survive her, or to survive her and her husband? If the answer is both of them, the joint quote will be lower, and I would get that quote before I compared anything. I would also ask whether $1,650, level, is enough at 85, when it buys roughly half what it buys at 65 at 3% inflation — and if the answer is no, I would price the rising-payment version, or annuitize a smaller amount and keep the rest invested.

Example two: the saver who starts at 45

Now imagine a 45-year-old who saves $500 a month, every month, for twenty years, at an assumed 5% a year, compounded monthly. The growth maths gives about $205,517 at 65, of which $120,000 was contributions and about $85,517 was growth. If that $205,517 is then paid out over twenty years at the same 5%, the monthly payment is about $1,355, or about $325,000 in total. I like this example because it shows both levers at once: the contribution did the heavy lifting early, the compounding did it late, and the payout rate did it at the end. Change the return to 4% and the value at 65 falls to about $183,000; change it to 6% and it rises to about $231,000. That range — not any single number — is the honest answer to the question “what will I have?”, and it is why I always run the calculator at three rates, not one, before I make a plan that depends on the result.

Example three: the couple who compare a quote with the formula

A couple, both 65, are offered an immediate annuity. The husband is quoted, on $200,000, using the survey range I cited earlier doubled: roughly $1,146 to $1,386 a month for a single life with a five-year period certain, because the $100,000 survey range was $573 to $693. The joint-and-survivor quote, which is the one they actually need, comes back lower — as it must, because it must pay for two lives. I do not invent the joint number here, because it depends on both ages, the survivor percentage, and the insurer, and inventing it would be exactly the dishonesty this page exists to prevent. What I do is show them the method: take the single-life quote, take the joint quote on identical terms, divide the second by the first, and ask whether the reduction is worth the protection. If the joint payment is 88% of the single-life payment, they are paying 12% for a guarantee that the surviving spouse keeps the income. For most couples I know, that is a price worth paying, and I want them to see it as a price, chosen, not as a disappointment discovered later.

Mistakes I see, and how I avoid them

The first mistake I see is buying on the bonus. Some deferred annuities offer a premium bonus — 5%, 8%, sometimes more — credited to the account on day one. The bonus is real money in the account value, but it is usually paid for by a longer surrender period, a lower credited rate, or a higher rider fee, and it is often not part of the guaranteed income value or the surrender value in the early years. I compare contracts on the guaranteed income and the surrender value, not on the bonus headline, and I treat any bonus I cannot find in the guaranteed column as marketing.

The second mistake is the exchange. An agent proposes swapping an old annuity for a new one, the new illustration looks better, and the owner signs. The new contract starts a new surrender clock, the old contract’s surrender charge is paid, and the owner is locked in for another seven to ten years, while the agent earns a fresh commission. Exchanges are sometimes right — an old contract with a poor rate and no valuable rider, exchanged after its surrender period has ended, can be an improvement — but I require the new contract to be better on guaranteed terms, after surrender charges, over the full new surrender period, and I require that comparison in writing, from someone who does not earn the commission.

The third mistake is confusing an illustration with a guarantee. Variable and indexed annuities are sold with illustrations that show what might happen at assumed returns or index movements. The non-guaranteed columns in those illustrations are scenarios, not promises. I read the guaranteed column first, I ask what assumptions the illustrated column uses, and I ask what would have to happen for the guarantee to be the number I actually receive. If the answer is long, I ask for it in writing.

The fourth mistake is the one I am most sympathetic to, because I have nearly made it myself: buying certainty with money you might need. An annuity is a commitment, and commitments are comfortable until life changes — a medical bill, a child’s crisis, a move, a death in the family. The surrender charge turns a change of plan into a loss, and the loss turns a good product into a regret. My rule is to keep at least a year’s essential spending, and a separate emergency fund, outside any annuity, and to annuitize only the money whose job is income and nothing else. If I cannot name the job the money is doing, I do not annuitize it.

Glossary, in my plain language

Sources I relied on for the facts on this page: IRS Publication 575 (Pension and Annuity Income) and Publication 939 (General Rule for Pensions and Annuities); Internal Revenue Code section 72 and sections 72(q) and 72(t); the SEC’s investor guidance on variable annuities; FINRA Rule 2330 on deferred variable annuity recommendations; the SECURE 2.0 Act provisions on RMD ages and QLAC limits, including IRS Notice 2025-67 for the $210,000 QLAC limit for 2026; and the LifeAnnuities.us October 2026 SPIA quote survey and a September 2026 MYGA market summary, both cited with their dates above. Where I give a range or a typical figure, I label it as a range or a typical figure, and where a figure is an illustration from my calculator, I label it as an illustration at an assumed rate. I checked every worked number on this page with the calculator above, at the stated assumptions.

PayByCountry is an independent calculator website, not a government website and not a financial adviser. This page is an educational estimate tool for the United States. It is not financial, tax, or legal advice, and it does not recommend any product, insurer, or course of action. Annuity contracts are complex, long-term commitments; read the contract and prospectus, check the insurer’s financial strength, and consider independent, fee-only advice before you buy. Tax rules change; check current IRS guidance for the year in which you act. Figures labelled as illustrations use assumed rates and are not quotes or guarantees.