Annuity Payout Calculator: Complete 2026 Lifetime Income Guide
Free annuity payout calculator with Single Life, Joint Survivor, and Period Certain options. Includes COLA rider analysis, exclusion ratio tax calculations, and inflation erosion projections.
Annuity Payout Options Explained: Choosing Your Income Structure
Single Life Annuity: Maximum Income, Maximum Risk
- How It Works:You receive fixed monthly payments for life. When you die, payments stop immediatelyโeven if you die one month after purchase. No beneficiary receives anything. The insurer keeps any remaining premium.
- Typical Payout Rates (Age 65, 2026):Single Life: 7.0-7.5% of premium annually. $500,000 premium = approximately $2,917-$3,125/month. This is 15-20% higher than Joint Survivor options.
- Best For:Single individuals with no dependents. Those with terminal illness diagnosis (maximize income while alive). Couples where surviving spouse has adequate separate income. Retirees prioritizing current lifestyle over legacy.
- Worst For:Married couples where one spouse depends on the income. Those with family history of early mortality. Anyone who views the annuity premium as "their money" rather than insurance.
Single Life annuities provide the highest possible monthly income because the insurer's obligation ends at your death. Understanding when this option makes senseโand when it's dangerousโis critical.
Joint and Survivor Annuity: Protecting Two Lives
- 100% Joint Survivor:Full payment continues to surviving spouse. Reduces initial payment by 15-20% vs. Single Life. Best for: couples with similar ages and health, where surviving spouse needs full income replacement.
- 50% Joint Survivor:Surviving spouse receives half the original payment. Reduces initial payment by only 5-10% vs. Single Life. Best for: couples where survivor has other income sources (pension, Social Security, investments) that partially replace the deceased's income.
- The Social Security Factor:When one spouse dies, the household loses the lower of the two Social Security benefits. Combined with Single Life annuity termination, total household income can drop 50%+. Joint Survivor annuities provide crucial buffering.
- Typical Payout Rates (Both Age 65, 2026):100% Joint Survivor: 5.8-6.3% annually. $500,000 premium = approximately $2,417-$2,625/month. The 15-20% reduction is the "insurance premium" for survivorship protection.
Joint and Survivor annuities continue payments as long as either spouse is alive, providing crucial income protection for the surviving spouse.
Life with Period Certain: Balancing Income and Legacy
- How It Works:You receive lifetime payments, but if you die before the certain period ends, your beneficiary receives remaining payments. Example: Life with 20-Year Certain at age 65โif you die at 70, beneficiary receives 15 more years of payments.
- Typical Payout Rates (Age 65, 2026):Life with 10-Year Certain: 6.8-7.2% (reduces Single Life by ~3%). Life with 20-Year Certain: 6.4-6.8% (reduces Single Life by ~6%). Longer certain periods = lower payments.
- Best For:Those who want lifetime income but worry about "losing" their premium to early death. Parents who want to ensure some legacy for children. Those with uncertain health who want both income and death benefit protection.
- The Trade-Off:Period Certain reduces your lifetime income to provide a death benefit you may never use. If you live past the certain period, you received lower income for nothing. Consider whether term life insurance might be more efficient for legacy goals.
Period Certain options guarantee a minimum payment period (typically 10 or 20 years), providing some legacy protection while maintaining lifetime income.
COLA Riders: Fighting Inflation Erosion
How Cost-of-Living Adjustment (COLA) Riders Work
- The COLA Trade-Off Quantified:A 3% COLA rider typically reduces your starting payment by 20-25%. On $500,000: Flat annuity starts at $3,000/month. 3% COLA starts at $2,250/month. The COLA payment exceeds the flat payment around year 12-15.
- The Long-Term Math:By year 20 with 3% COLA: COLA payment = $4,063/month. Flat payment = $3,000/month (but worth only $1,660 in today's dollars at 3% inflation). Cumulative payments through year 20: COLA = $738,000, Flat = $720,000. COLA wins if you live 15+ years.
- When COLA Makes Sense:You're annuitizing at a younger age (60-65) with long life expectancy. Inflation is expected to remain elevated (3%+ long-term). Your fixed expenses (housing, food, healthcare) will grow with inflation. You have no other inflation-protected income (TIPS, I-Bonds, inflation-adjusted pension).
- When Flat May Be Better:You're annuitizing later (75+) with shorter expected horizon. You have other inflation-protected income sources. You need maximum current income for fixed obligations. You plan to supplement with investment withdrawals that can adjust.
COLA riders increase your annuity payment by a fixed percentage each year, protecting purchasing power against inflation. The cost is a significantly reduced starting payment.
Annuity Taxation: Qualified vs. Non-Qualified
Understanding the Exclusion Ratio for Non-Qualified Annuities
- Exclusion Ratio Formula:Exclusion Ratio = Premium / Expected Total Payments
Expected payments = Monthly payment ร 12 ร IRS life expectancy. At 65, IRS uses ~20-year expectancy.
- Example Calculation:$500,000 premium, $3,000/month payment, age 65 (20-year expectancy). Expected payments = $3,000 ร 12 ร 20 = $720,000. Exclusion ratio = $500,000 / $720,000 = 69.4%. Only 30.6% of each payment is taxable ($917/month) until you recover your full premium.
- After Premium Recovery:Once you've received $500,000 in total payments (about 14 years at $3,000/month), your premium is fully recovered. After that, 100% of each payment becomes taxable. This is the "crossover point" where taxes increase.
- Qualified Annuities (401k/IRA Funds):No exclusion ratioโ100% of every payment is taxable as ordinary income because the premium was never taxed. This is the same treatment as 401k/IRA withdrawals. No special tax advantage, but also no tax disadvantage vs. systematic withdrawals.
Non-qualified annuities (funded with after-tax dollars) receive favorable tax treatmentโonly the earnings portion is taxable. The exclusion ratio determines the tax-free percentage.
Break-Even Analysis: When Does the Annuity "Win"?
Calculating Your Annuity Break-Even Point
- Break-Even Formula:Break-Even Years = Premium / Annual Payout
At 7% payout rate: $500,000 / $35,000 = 14.3 years. Age 65 + 14 years = break-even at age 79.
- Life Expectancy Context:Average 65-year-old life expectancy: Men = 84, Women = 87. A 65-year-old couple has 50% chance one spouse lives to 92. Most annuitants exceed break-even. The "risk" of dying early is smaller than the risk of running out of money.
- Why Break-Even Is the Wrong Frame:You don't buy car insurance hoping to crash enough to "break even." Annuities are longevity insuranceโprotection against the financial catastrophe of outliving your assets. The "loss" of dying early is offset by the peace of knowing you can't outlive your income.
- Reframing the Decision:Instead of "Will I live long enough to break even?", ask: "Can I afford to run out of money if I live to 95?" If the answer is no, an annuity provides insurance no investment portfolio can match.
Break-even is when cumulative payments received equal your premium. Living beyond break-even means the annuity paid more than you contributed. But framing annuities as a "bet" misses the point.
Retirement Income FAQ
? What is a good annuity payout rate in 2026?
For a 65-year-old in 2026, a healthy Single Life Immediate Annuity payout rate is 6.5-7.5% of premium. At $500,000 premium, expect $2,700-$3,125/month. Rates below 6% suggest poor pricing. Joint survivor rates are 15-20% lower. Shop multiple insurersโrates vary significantly.
? How much income will a $500,000 annuity provide?
At age 65 with current rates: Single Life: ~$3,000/month ($36,000/year). Joint & Survivor (100%): ~$2,460/month ($29,520/year). Life with 20-Year Certain: ~$2,820/month ($33,840/year). Adding a 3% COLA rider reduces starting income by ~25% but provides inflation protection.
? What is the annuity exclusion ratio and how does it work?
For non-qualified annuities (funded with after-tax money), the exclusion ratio determines the tax-free portion of each payment. It equals your premium divided by expected total payments. At 65 with 20-year life expectancy: $500,000 premium รท $720,000 expected payments = 69% exclusion. Only 31% of each check is taxable until you recover your premium.
? Should I choose Single Life or Joint and Survivor annuity?
Joint & Survivor if: your spouse depends on your income, they have longer life expectancy, or losing your Social Security would devastate household finances. Single Life if: you're single, spouse has adequate separate income, or you prioritize maximum current income. The 15-20% reduction for Joint is essentially life insurance for your spouse.
? Is a COLA (inflation) rider worth the reduced starting income?
A 3% COLA rider reduces your starting check by ~25% but compounds annually. By year 15, the COLA payment exceeds the flat payment. By year 20, it's 80% higher. If you expect to live 15+ years past annuitization, COLA typically wins mathematically. Without COLA, a flat $3,000/month buys only $1,660 in today's dollars by year 20 (at 3% inflation).
? What is the break-even age for an immediate annuity?
Break-even is when total payments received equal your premium. At 7% payout rate, break-even is ~14 years (age 79 if starting at 65). Live beyond break-even and the annuity "wins." Die before and you "lose." Average 65-year-old life expectancy is 84-87, so most people exceed break-even. Joint annuities extend break-even by 3-5 years.