How Much Would a $1 Million Annuity Pay?

The amount you collect from an annuity depends on several factors. Your first date of payment, the interest rate, duration, and other details of your annuity contract all dictate how much your pay out will be. For example, a 60-year-old who purchases a 20-year guaranteed $1 million annuity that begins paying out five years later could expect to receive monthly payments of $7,534. It’s difficult to provide a specific answer to what any single person should expect from this financial product, but using an online annuity calculator could help you see your options..

A financial advisor can help you determine if an annuity is a good fit for your retirement plan.

What Is an Annuity?

Annuities are contracts that you make with a financial institution or an insurance company where you agree to purchase the contract and its terms in either a lump-sum payment or a series of payments.

In exchange, you receive a series of payments made each month for at least one year. While some annuities pay you for a fixed number of years, such as 10 or 20 years, others are what’s called a “lifetime annuity.” The latter is an annuity that pays you during retirement and continues paying each month for the rest of your life.

The idea here is similar to the interest payments you receive from a bank. The company that issues your annuity holds, uses and invests your money. In exchange, it gives you a rate of return and guaranteed payments.

For annuities that pay out over a fixed term (instead of lifetime annuities), this is specifically structured like a loan. You receive back your full initial payment (the principal) plus the interest that accrues over the lifetime of the contract, typically compounded annually.

How an Annuity Works

To get a better idea of how a specific annuity works, let’s look at an example of a $1 million annuity. Your annuity purchase would look like this:

• Purchase Price: $1 million
• Starting Age: 65
• Duration: 20 years guaranteed

In this case, you would buy the annuity for a single payment of $1 million. In exchange, the insurance company would start issuing you payments at age 65 and continue issuing payments each month for the next 20 years.

Retail investors’ annuities are primarily retirement products, so most of them are structured to start repaying you at or around retirement age. Most people who use this product to save for retirement buy lifetime annuities since these provide guaranteed income throughout retirement.

Every annuity will offer rates of return that differ based on companies and their products. In particular, companies calculate lifetime annuities and fixed-term annuities very differently.  Lifetime annuities work differently because the company doesn’t know how long it will make payments, so the value of the annuity is based on interest rates and life expectancy.

How Much Would a $1 Million Annuity Pay?

If you buy a $1 million annuity, you will receive guaranteed monthly payments for the rest of your life or over a set period. How much you receive and for how long depends entirely on the individual contract you buy, when you buy it and from whom you buy it.

For example, imagine you’re 60 years old, plan to retire at 65 and decide to use $1 million in retirement savings to buy an annuity that you’d like to generate monthly income for 20 years. Then let’s say you opt for a multi-year guaranteed annuity (MYGA) that grows at a fixed rate for five years. According to Annuity.org, the highest rate for a five-year MYGA in mid-December 2025 was 6.45%. ¹

So then, your $1 million balance would begin compounding at 6.45% per year for the next five years, a period known as an annuity’s accumulation phase. By the time you reach age 65, the annuity would have a value of just over $1.36 million.

Common Types of Annuities

Several different types of annuities vary based on when you pay for the annuity, when you receive payments or even who is making the payments on the annuity. Let’s take a look at the most common, or well-known, types of annuities:

• Lump-Sum Annuity: You purchase your annuity with a single payment upfront.
• Regular Payment Annuity: You purchase your annuity with regular payments over time.
• Period Certain Annuity: Otherwise known as a fixed-term annuity. You receive fixed payments for a defined period.
• Variable Annuity: You receive variable payments for either a defined period or for the rest of your life. The payments are determined by your contracts, such as a variable interest rate or an indexed payment system.
• Single Life Annuity: You receive fixed payments for the rest of your life.
• Joint/Survivor Annuity: You receive fixed payments for the rest of your life. After you die, a named partner continues to receive fixed payments for the rest of their life (although this second set of payments may be a different amount than the first).
• Qualified Employee Annuity: You receive payments through an annuity purchased by your employer.
• Tax-Sheltered Annuity: You receive payments through an annuity purchased by your employer if your employer is a tax-exempt organization.

Pros and Cons of Annuities

Annuities are complicated financial contracts with a variety of benefits, and drawbacks, potential investors should understand. Understanding these details can help you make informed decisions about whether they fit into your financial strategy.

Pros

• Guaranteed income stream: Annuities offer the advantage of a predictable retirement income stream. This feature provides financial security by ensuring you have a steady flow of money, regardless of market fluctuations.
• Tax-deferred growth: The earnings on annuities grow tax-deferred, meaning you won’t pay taxes on the income until you withdraw it. This can be advantageous for those looking to maximize their investment growth over time without immediate tax implications.
• Protection against longevity risk: Annuities can protect against the risk of outliving your savings by providing lifetime income options. This feature is especially appealing for individuals concerned about maintaining their standard of living in later years.

Cons

• High fees and expenses: One of the significant drawbacks are high annuity fees and expenses, which can erode your investment returns. It’s crucial to understand all associated costs, including administrative fees, mortality and expense risk charges, and surrender charges.
• Limited liquidity: Annuities often come with restrictions on accessing your funds, which can limit your financial flexibility. Early withdrawals may incur penalties, making it essential to consider your liquidity needs before investing.
• Complexity and lack of transparency: Annuities can be complex financial products with terms that are difficult to understand. This complexity can lead to confusion and misinterpretation, so it’s important to thoroughly review and comprehend the contract details.

How Market Conditions Shape Annuity Payments

A missing element in the discussion of annuity payouts is how broader market conditions influence what an insurer can offer. Interest rates sit at the center of this process. When rates are higher, insurers can earn more on the money you contribute, which generally supports stronger payout schedules. When rates are lower, projected returns shrink and monthly income offers tend to fall. Because annuity quotes are locked in at the time of purchase, the rate environment you buy into will affect your lifetime income more than most investors realize.

Longevity trends also shape annuity pricing. As people live longer, insurers spread payments over a longer period, which can reduce the monthly income you receive from the same premium amount. A contract purchased at age 60 will reflect different assumptions than one purchased at age 70, even if interest rates remain the same. These actuarial expectations shift over time, and companies update their payout structures to align with new data.

The insurer’s financial strength is another variable. A company with a stronger balance sheet can support more competitive payouts, while a weaker insurer may need to take a more conservative approach. Although guarantees are backed by the issuing company and state guaranty associations, the underlying financial health of the carrier affects how they price risk and structure payments.

Contract design adds another layer. Features such as cost-of-living adjustments, guaranteed periods, refund provisions and joint-life options all influence how much income an annuity can provide. Each added protection redistributes risk between you and the insurer. Contracts with more protective features often offer lower monthly payments than those with fewer guarantees. Understanding these tradeoffs before purchasing gives you a clearer picture of what a given payout represents and how it was built.

Bottom Line

If you buy an annuity worth $1 million you can make a significant amount of money back, but the total amount you can earn depends on the factors in your annuity contract. While annuities offer benefits like guaranteed income and tax-deferred growth, they also come with drawbacks such as high fees and limited liquidity. Carefully weighing these pros and cons can help you determine if annuities align with your financial goals and retirement plans.

Tips for Buying Annuities

• If you’re unsure if an annuity is right for you, it might help to speak with a financial advisor. 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.
• How can you calculate annuity rates of return for yourself? Fortunately, we’ve put together a helpful cheat sheet right here that you can use to help plan out your investment options.
• Use SmartAsset’s retirement calculator to get a quick estimate of how you’re doing in preparing for retirement.

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