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Is It Better to Take Annuity Payments Monthly or Once Per Year?


A lot of retirees use annuities to simplify their income stream in retirement but that doesn’t mean annuities are simple. Beyond choosing what kind of annuity to purchase – immediate vs. deferred and fixed, indexed or variable, you’ll also need to consider how to receive your annuity payments.

You can receive a lump sum from your annuity, a life option that pays over your lifetime and, if you choose, a spouse, other survivors or an estate, or a systematic stream of fixed payments that you receive annually, semi-annually, quarterly or monthly.

While the systematic withdrawal approach gives you the kind of reliable cash flow that you can coordinate with your monthly or other periodic expenses, the insurance company paying the annuity can’t promise that you won’t outlive your money. The other question involved is how often to take your payments, and whether there are any particular advantages to any one approach.

A financial advisor can help you choose an appropriate strategy for your annuity.


Whether you take your payments monthly, annually or on some other schedule, you’ll face the same tax liability. If the annuity was purchased with pre-tax dollars all of the payments are taxable no matter how often you receive them. For annuities purchased with after-tax dollars, only the portion of the payments that are gains are taxable, while the returned principal portion goes untaxed.

Either way, if you withdraw money from an annuity before age 59-1/2, you’re likely to face a 10% tax penalty. In exchange for this illiquidity, the tradeoff is that otherwise your annuity grows tax-deferred.

Monthly Payment

This is the most common, default option with many annuities, and allows a retiree to time the payments with their monthly bills. If you’re also collecting monthly Social Security or pension payments and taking cash out of an IRA or other retirement account, you might want to use that money to cover your monthly expenses and allow your annuity investments to grow a bit longer by taking an annual payment.

Talk to a financial advisor about the pros and cons of monthly, annual and lump sum payments.

Annual Payment

With a once-per-year payment, the beneficiary can deposit the money in an interest-bearing account and take smaller quarterly or monthly withdrawals as they need cash, leaving the rest of the annual money to generate interest for more months to come. One safe way would be to deposit the annual payment in a high-interest money market account, which offers the safety of deposit insurance with the flexibility of writing a limited number of checks each month while leaving the remaining deposit to generate interest.

Payment Cutoff Considerations

If your annuity doesn’t pay a survivor benefit then the payments will stop when the annuitant dies, resulting in a drop in household income for a surviving spouse. If the annuity payments are monthly, the survivor will miss out on any remaining payments for that year starting in the month after the beneficiary dies. If, however, the payments are made annually each January, the entire year’s annuity income already has been received, providing a bit more cash.

If you need help with estate planning considerations, consider talking to a financial advisor.

Changing the Payment Schedule

While you generally can’t change the payment method once you’ve started taking withdrawals from an annuity, you may be able to change the frequency of payments in a systematic payment schedule, subject to the type of annuity you’ve purchased. Depending on how the annuity payments are calculated, your payment might be reduced if you increase the frequency of your payments.

Bottom Line

Deciding how to structure the cash flow of your retirement income is an important consideration in designing your retirement finances, especially when it comes to annuities.


  • The right type of annuity can be a good addition to your retirement plan, along with Social Security, pension payments and withdrawals from investment and retirement accounts. A knowledgeable financial advisor can help you decide how to structure and coordinate these payments throughout your retirement.
  • Finding a financial advisor doesn’t have to be hard. SmartAsset’s free tool matches you with up to three vetted financial advisors who serve your area, and you can interview your advisor matches at no cost to decide which one is right for you.

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