If you’re looking for alternative ways, outside of the stock market and bonds, to create retirement income, an annuity could be right for you. A $500,000 annuity can offer consistent, reliable income in retirement, whether you’re retiring soon or decades from now. Before making an investment decision, you may want to first speak to a financial advisor who can help create a financial plan that meets your unique goals.
What Is an Annuity?
An annuity is an insurance contract that provides monthly payments for a certain length of time, the rest of your life or both. Individuals or couples typically purchase annuities to generate income during retirement.
Unlike an IRA or 401(k), annuities provide guaranteed revenue according to a contract. When you pay into an annuity, you will receive your money plus accrued interest back over time.
Many retirees find it challenging to create sufficient income. Annuity payments help fill that gap by supplementing distributions from an IRA or 401(k). Additionally, your annuity income can help you delay Social Security payments, allowing you to increase your monthly benefit.
There are three types of annuities:
- Fixed annuities have a permanent interest rate, as the name implies. It will pay out over time according to this set rate.
- Variable annuities invest the funds in the account in a higher risk, higher reward fashion. Your return rate and payout rise and fall according to the annuity’s portfolio.
- Indexed annuities have rates of return based on a market index such as the S&P 500. While they invest more aggressively than fixed annuities, they are often less risky than variable annuities.
Remember, the goal of an annuity is to provide steady payments for a long time or for life. Therefore, the annuity you set up needs to generate an amount specific to your lifestyle.
Annuities give two different payout options: immediate and deferred. An immediate annuity will send you monthly payments as soon as you purchase one. If you have more time to plan for retirement, a deferred annuity grows through the deposits you make and the interest it earns over time.
How Much Do Annuities Pay Out?
Annuity payout depends on the value of the annuity, annuity type, the company you choose and your age. You can also guarantee that you receive payments even if your annuity runs out of money through an income rider.
Your payout will vary based on the annuity type, provider and your age at the time you start withdrawals. However, with a figure of $500,000, you can calculate how much you would receive per year from your annuity.
How Much Does a $500,000 Annuity Pay Per Month?
Annuity payments depend on several factors, including payout type, interest rate, your age at purchase and the deferral period.
The tables below estimate how much different types of $500,000 immediate annuities would pay at different ages for men and women. Since women have longer life expectancies than men, monthly annuity payments are typically lower. The figures were generated in March 2025 using the Schwab Income Annuity Estimator.
Estimated Monthly Payments from a $500,000 Annuity
(Male Annuitant)
| Age | Single Life Only | Single Life + 10-Year Certain | Single Life + 20-Year Certain | Single Life + Cash Refund |
| 55 | $2,701 | $2,676 | $2,605 | $2,621 |
| 60 | $2,894 | $2,883 | $2,756 | $2,810 |
| 65 | $3,149 | $3,157 | $2,881 | $3,047 |
| 70 | $3,553 | $3,512 | $3,037 | $3,372 |
| 75 | $4,190 | $3,962 | $3,132 | $3,817 |
Estimated Monthly Payments from a $500,000 Annuity
(Female Annuitant)
| Age | Single Life Only | Single Life + 10-Year Certain | Single Life + 20-Year Certain | Single Life + Cash Refund |
| 55 | $2,661 | $2,618 | $2,576 | $2,576 |
| 60 | $2,825 | $2,809 | $2,733 | $2,742 |
| 65 | $3,037 | $3,012 | $2,856 | $2,927 |
| 70 | $3,374 | $3,317 | $2,972 | $3,212 |
| 75 | $3,914 | $3,717 | $3,092 | $3,587 |
A single life annuity pays only the annuitant and stops at death, without payments to beneficiaries. Single life annuities with “certain periods” make payments to beneficiaries if the annuitant dies within that period of time. Those payments continue until the end of that length of time. Meanwhile, a single life annuity with a cash refund pays out the original investment to an annuitant’s beneficiaries, minus the amount of income payments the annuitant had received at the time of their death.
Watch Out for Annuity Fees
All annuities have fees, so make sure you know the details before committing to one. An annuity that yields high returns might also have higher fees than expected. Annuity fees can come in the following forms:
- Administrative fees
- Mortality and expense risk fees
- Early withdrawal charges and tax penalties
- Annual contract fees
- Broker commissions and investment management fees
These costs impact your monthly payout. Review the contract details before buying, especially the expected payout and any conditions attached.
Should I Buy a $500,000 Annuity?
A $500,000 annuity could be useful to your retirement plan, especially if you are already maxing out your investment accounts. Here is a list of pros and cons to help you determine if an annuity should be part of your retirement strategy.
Pros:
- Annuities can give you income for life, no matter how the stock market performs.
- Annuities grow tax-free.
- Monthly payments can help you defer Social Security payments for a few years, maximizing your Social Security benefit down the road.
- Payouts can start immediately after purchase.
- Some annuities will continue to pay out even after the fund runs out.
Cons:
- Fees can be excessive and vague.
- Annuities typically require a large upfront investment.
- Depending on how old you are when you make the purchase, you may have to wait years before taking advantage of the benefit.
- Annuity payments are subject to income tax.
Bottom Line
Annuities offer the advantage of income uninterrupted by market volatility. Monthly payments can start the day you retire and last for life. However, high fees and low rates of return can inhibit the ability of the fund to give you sufficient income. Depending on your financial situation, a $500,000 annuity could be a lynchpin in your retirement strategy and is worth exploring.
Annuity Tips
- Consider talking to a financial advisor about whether an annuity should be a part of your retirement planning and, if so, what type. Finding a financial advisor doesn’t have to be hard. SmartAsset’s free tool matches you with vetted financial advisors who serve your area, and you can have a free introductory call with your advisor matches to decide which one you feel is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
- Consider how annuity income will be treated for tax purposes when you begin receiving payments. Whether you’re purchasing a non-qualified annuity or a qualified annuity determines your tax liability.
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