How Much Does a $300,000 Annuity Pay Per Month? (2024)

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Annuities are a popular way to manage income in retirement, but they can be difficult to understand. One of the most important things to be clear about if you’re considering an annuity is how much income it will generate in retirement. There are a lot of factors that go into determining an annuity payout amount.

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Here’s a look at some examples, and then look at what goes into the variables.

How Much Does a $300,000 Annuity Pay Per Month?

There’s no one answer to this question since it depends on a number of factors. Here are some examples of how much a $300,000 annuity could pay out in certain situations.

• A 60-year-old woman who puts $300,000 into an immediate annuity — meaning that she begins taking payments right away — might get $1,675 per month.
• If that same 60-year-old woman put $300,000 into an annuity but waited until age 80 to begin taking payments, she might get $8,849 per month.
• If an 80-year-old man put $300,000 in an immediate annuity, he might get $3,069 per month.
• If a 35-year-old man put $300,000 into an annuity and began taking payments at age 65, he might get $7,796 per month.

There’s a lot of variation in these numbers, making it difficult to give a definitive answer to the question of how much a $300,000 annuity pays per month. Why is there so much difference? This is how annuity payouts are calculated.

What Factors Determine How Much an Annuity Pays Per Month?

There are many different kinds of annuities and many factors that go into calculating the payout amount for any given annuity contract. Here’s a look at the different factors that go into determining an annuity payout.

Is the Annuity Immediate or Deferred?

Annuities can be categorized as either immediate or deferred. With an immediate annuity, the investor deposits a lump sum into the annuity contract and begins taking payments right away.

With a deferred annuity, the investor either deposits a lump sum into the contract or makes periodic payments over time. The money in invested, and the gain remains in the contract and, importantly, is not taxed until it is withdrawn. This tax-deferred feature of annuities can help them grow in value faster than other types of investments.

A deferred annuity will have a higher payout amount than an immediate annuity for the same premium (deposit) amount since the money has time to grow before income payments begin.

Are the Investments Fixed or Variable?

The money an investor deposits into an annuity — sometimes referred to as the premium – is invested. A fixed annuity contract invests in fixed investments, with a guaranteed rate of return. A variable annuity contract invests in variable investments, like stocks and mutual funds. Some variable contracts are indexed annuities, whose investments mimic a stock market index like the S&P 500.

Historically, variable annuity contracts have performed better over time than fixed contracts, simply because the underlying investments have performed better. So, with everything else being equal, a variable annuity historically provides a higher monthly payout than a fixed contract, but this is not guaranteed.

Is the Contract Single or Joint?

A non-qualified annuity — so, a contract that is not an IRA or other retirement plan — can be either single, with one owner and annuitant, or joint, owned by a married couple with both spouses as annuitants.

A single annuity makes income payments as long as the sole annuitant lives. A joint annuity makes income payments until the second spouse dies. If everything else is the same, a single annuity will pay out more each month than a joint annuity.

What Is the Investor’s Age?

An annuity is a type of insurance contract. Once the investor annuitizes the contract and begins receiving payments, the annuity provider pays the investor a certain amount each month for the rest of their life. The annuity company uses actuarial tables, such as the ones used to calculate life insurance premiums, to determine how much to pay depending on how long the investor is expected to live.

A younger investor is likely to live longer, therefore their payments will be lower each month. An older investor will receive larger payments each month since their life expectancy is shorter. Theoretically, each investor should receive the same amount of money over the course of their lifetime — assuming everything else in the two contracts is the same — but the older investor collects that money in a shorter amount of time, so their payments are larger.

How Long Has the Investor Had the Annuity Contract?

The longer you hold an annuity contract before you begin taking payments, the larger those payments will be. There are two factors at play here: the investment returns in the contract and your age.

When the money an investor deposits in an annuity contract — sometimes called the premium — is invested, it earns more money. That money stays in the contract and is itself invested, compounding your return. In addition, the gain is not taxed until you withdraw the money, so your compound return is tax-deferred.

In addition to this advantage, the longer you keep the money in the annuity before you start taking it out, the older you will be. As noted above, older annuitants receive larger payments than younger ones, simply because they are likely to receive fewer payments over their lifetime.

What Are the Fees?

Variable annuities tend to have higher fees than many other types of investments, and these fees can impact your return, and therefore the amount of monthly income you will receive.

There are several different fees that annuity investors pay, and they can vary widely depending on the type of contract and the company issuing the annuity. Fixed annuities have fewer fees — typically only administrative fees and commissions.

Here are some of the fees you could pay for an annuity contract.

Administrative Fees

This is the fee that the insurance company charges to maintain your contract and includes things like recordkeeping. This can be a flat fee, usually $50 per year or so, or a percentage of the account value.

Mortality and Expense (M&E) Charge

This is sometimes called the Base Contract Fee. It’s the fee that the insurance company providing the annuity charges for the risk it is taking under the contract; in other words, the risk that you will live longer than projected and they will have to pay out more than they thought they would.

The M&E charge is typically 1.25% of the contract value annually. So if the contract value is $300,000, the M&E charge would be $3,750 for that year. As the contract value increases, the amount (but not the percentage) of this fee increases as well. This is an important consideration when comparing an annuity to other types of investments, because your return would need to be 1.25% higher per year in an annuity compared to another investment, to offset this charge.

Surrender Charge

Annuities are meant to be a long-term investment, so annuity companies will typically charge you a fee if you withdraw your money before a certain period of time. Surrender charges can be up to 10% and can last as long as 10 years, although they typically decline over time. So an annuity may have a surrender charge of 10% in year one, 9% in year two, 8% in year three, and so on, until there is no surrender charge after the tenth anniversary.

Some contracts will have a provision whereby you can withdraw part of your money with no surrender charge. For example, you may be able to withdraw 10% of the account balance without a surrender charge, but any amount above that would be subject to this charge.

Rider Fees

Some annuities have optional features, sometimes called riders, that you can opt into for a fee. Some of these features include a guaranteed minimum income benefit–sometimes referred to as GMIB–which is an enhanced death benefit, or a long-term care insurance option. The fees for these riders vary depending on the contract.

Annuities can provide retirement income that you can’t outlive — a “personal pension” if you will. But they are complex investments and there are a lot of decisions that need to be made in order to find the best annuity in any given situation. It pays to research carefully and consult a trusted advisor before making your choice.