What an Immediate Annuity Pays, and What It Costs You

You’ve spent decades saving, and now a harder question replaces it: how do you turn that lump sum into income that won’t run out? An immediate annuity answers that directly — you hand an insurer a single payment, and a monthly check starts almost right away, for as long as you live.

This guide is built for three readers. If you need income now — a recent retiree filling the gap between Social Security and your bills — start with the payout figures below; a retirement income calculator can help you size that gap first. If you’re comparing products before deciding, the sections on how it works, taxes, and tradeoffs matter most. If you’re a pre-retiree planning ahead, focus on whether this fits your wider plan.

A quick anchor before the details: at today’s rates, a $100,000 immediate annuity buys roughly $575–$670 a month for a 65-year-old, and more at older ages — near its best level in over a decade. Hold onto one tradeoff from the start: this decision is usually permanent.

ℹ️ Financial Disclaimer: This article is for general education only and is not personalized investment, tax, insurance, or legal advice. Annuities are insurance products whose guarantees depend on the issuing company’s financial strength, and any payout figures shown are illustrative and not guaranteed until a policy is issued. Before acting, consult a fiduciary financial advisor, a CPA, or a licensed insurance professional about your specific situation.

What is an immediate annuity, and how does it work?

A single premium immediate annuity (SPIA) is a contract: you pay an insurer one lump sum, and in exchange it sends you a guaranteed income payment — typically starting within about 30 days — for life or a set period. There are no funds to manage and usually no annual fees. The catch is that the lump sum is generally irrevocable once the contract is issued. It helps to see what an annuity is and where this one fits among the broader family of products.

Payout rate vs. interest rate: what the % really means

The biggest point of confusion is the payout rate — and it is not an interest rate. A 7% payout rate on $100,000 means $7,000 a year, but that figure includes a return of your own principal plus interest, not 7% earned on a preserved balance. Comparing annuity types side by side, like how the main annuity types differ, makes this clearer.

🔍 How It Works: Each SPIA payment blends three things — a return of part of your principal, interest the insurer earns, and “mortality credits.” The insurer pools many buyers; money from those who don’t live as long helps fund larger payments for those who do. That pooling is why a SPIA can pay more than you could safely withdraw on your own.

SPIA vs. deferred income annuity: timing is the difference

A SPIA starts paying almost immediately. A deferred income annuity (DIA) begins at a future date you choose — often years later — which lets the insurer offer a higher payment when it eventually starts; the mechanics of how annuity income is structured apply to both. For a neutral primer, the SEC’s Investor.gov overview of annuities explains which annuity types are also securities.

How much does a $100,000 immediate annuity pay per month?

A $100,000 immediate annuity currently pays a 65-year-old roughly $575–$670 per month for life, depending on gender and payout option, based on carrier quotes surveyed in spring 2026. Older buyers receive more, because the insurer expects to make payments over fewer years.

Carrier-survey estimates, April 2026. Figures vary by carrier, state, and health, and are not guaranteed until a policy is issued. Source: Annuity.org.

How age changes the number

Wait longer and the monthly check climbs. In one May 2026 carrier survey, a 70-year-old man received about $229 more per month than a 65-year-old on the same $250,000 deposit, simply because the insurer expects a shorter payout period. If you’re years from needing income, it’s worth modeling whether to buy now versus keep accumulating first, perhaps in a multi-year guaranteed annuity (MYGA).

Why payouts are near decade highs

SPIA payments track Treasury and bond yields, so the interest-rate environment drives them. The Federal Reserve has held its target range at 3.50%–3.75% through the first half of 2026 — far above the near-zero years of 2012–2020 — which lets insurers fund larger immediate-annuity payments today, as explained on the Fed’s page on open market operations and its target rate.

📊 Data Point: Americans bought $14.4 billion of single premium immediate annuities in 2025, up 6% year over year — part of a record $464.1 billion in total annuity sales. — Source: LIMRA, 2026.

⚠️ Costly Mistake: Buying from the first carrier you call. In a May 2026 survey, the gap between the highest- and lowest-paying carrier on identical inputs was about $72 a month — roughly $864 a year, locked in for life. Always compare several carriers before signing.

How to buy an immediate annuity (step by step)

Buying a SPIA is straightforward, but the order of the steps protects you. Treat it as a process, not a single phone call.

1. Size your income gap. Add up essential monthly expenses, subtract Social Security and any pension, and convert only enough savings to cover the shortfall — not your whole portfolio.
2. Choose a payout option. Decide between life-only, a period-certain or refund feature, and joint coverage for a spouse, using the tradeoffs above.
3. Gather quotes from several carriers. Payouts differ meaningfully on identical inputs, so compare at least three.
4. Check financial strength. Because the guarantee rests on the insurer, review independent ratings such as AM Best and a composite COMDEX score before choosing.
5. Stay within guaranty limits. Split a large premium across more than one insurer so each contract stays under your state’s coverage cap, covered below.
6. Verify the seller, then finalize. Confirm the firm and representative are licensed before completing paperwork; you can check a firm or representative’s registration through FINRA.

✅ Action Step: Before signing, get written quotes from at least three A-rated carriers for the same premium and payout option, and ask a fee-only fiduciary advisor one question: “Given my other income and goals, how much of my savings — if any — belongs in an immediate annuity?”

💡 Expert Note: FINRA’s guidance is blunt — anyone selling you an annuity must be registered or licensed. If a salesperson claims they don’t need to be, that’s a reason to walk away rather than a detail to overlook.

Is an immediate annuity right for you? Pros and cons

There’s no universally right answer here — the fit depends on your other income, your health, and what you want to leave behind. A SPIA solves one specific problem well: the fear of outliving your money.

When a SPIA fits

It tends to suit retirees with little guaranteed income beyond Social Security, those worried about a long retirement, and people who want simplicity over managing investments. Covering essential bills with guaranteed income can also free you to invest the rest more comfortably; it’s worth seeing how this income fits alongside your Social Security.

When to think twice

A SPIA is a poor fit if you may need the lump sum for emergencies, if leaving a large inheritance is a priority, or if you can comfortably fund retirement from other assets. Unlike a variable annuity, which carries market risk and higher fees, a SPIA has no market upside — but also none of the fees or complexity.

The three real tradeoffs

1. Irreversibility — once issued, you generally can’t reclaim the principal.
2. Inflation — a level payment loses buying power over decades unless you buy a cost-of-living rider, which lowers the starting check; you can see how inflation erodes a fixed payment over time.
3. Opportunity cost — money in a SPIA isn’t growing in the market.

The CFPB’s Planning for Retirement guidance is a neutral starting point for weighing these choices.

⚠️ Costly Mistake: Converting your entire nest egg. Locking up all your savings leaves nothing for emergencies, large one-off costs, or heirs. Most planners suggest covering only your essential-expense gap with a SPIA and keeping the rest liquid and invested.

How are immediate annuities taxed?

How much of each SPIA payment is taxable depends entirely on the money you used to buy it.

Qualified vs. non-qualified

A qualified annuity bought with pre-tax retirement money — a traditional IRA or 401(k) rollover — is fully taxable, because that money was never taxed; every dollar of each payment counts as ordinary income. A non-qualified annuity bought with after-tax savings is only partly taxable, because part of each payment is treated as a tax-free return of your own principal.

🔍 How It Works: The IRS splits non-qualified payments using an exclusion ratio — your investment in the contract divided by the total income you’re expected to receive. That percentage of each payment is tax-free; the rest is taxable. Once you’ve recovered your full principal, all later payments become 100% taxable.

Worked example: the exclusion ratio

Say a 65-year-old buys a $100,000 non-qualified SPIA paying about $625 a month, or $7,500 a year, for life. The IRS life-expectancy multiple at age 65 is 20.0, so the expected return is $7,500 × 20 = $150,000. The exclusion ratio is $100,000 ÷ $150,000 = 66.7%, so roughly $417 of each $625 payment is tax-free and about $208 is taxable — until 20 years of payments recover the principal, after which the full payment is taxable. The method comes straight from the IRS General Rule for annuity taxation, and you can estimate the tax on the taxable portion once you have a real quote.

✅ Action Step: Before you buy, ask a CPA one specific question: “How will this annuity’s taxable portion affect my Medicare IRMAA surcharges and the taxation of my Social Security this year?” The answer can change which funding source you should use.

Is an immediate annuity safe? Risks and mistakes to avoid

A SPIA is only as safe as the insurer behind it, so “safe” deserves a precise answer.

Not FDIC-insured — what actually backs your income

An immediate annuity is not FDIC-insured; that protection covers bank deposits only. Your income is backed first by the issuing insurer’s financial strength, and second by your state’s guaranty association if that insurer fails.

📊 Data Point: Most states guarantee $250,000 in the present value of annuity benefits per owner, per insurer, under the NAIC model law — though limits vary (some states reach $300,000–$500,000, and California covers 80% up to $250,000). — Source: NOLHGA / NAIC.

Two details matter. The cap is per owner, per insurer — not per policy — and it applies to present value, not the total of all future payments. That’s why splitting a large premium across two strong carriers raises your protection.

Mistakes that cost SPIA buyers

• Skipping the carrier-strength check before buying.
• Placing more than the guaranty limit with a single insurer.
• Defaulting to a level payment and ignoring inflation.
• Choosing life-only when a spouse depends on the income.

✅ Action Step: Confirm your chosen insurer’s premium keeps you under your state’s guaranty limit; if you’re placing more, ask a licensed insurance professional how to split it across two financially strong carriers.

Immediate annuity FAQ

The bottom line on immediate annuities

An immediate annuity does one thing well: it converts a lump sum into a paycheck you can’t outlive. That security comes at a real price — you give up access to the principal, market growth, and, without a rider, protection from inflation. For many retirees, covering essential expenses with guaranteed income is worth that trade; for others, liquidity and flexibility matter more.

Two concrete next steps before you decide: gather written quotes from at least three financially strong carriers for the same premium and option, and map how this income fits your full retirement plan. Then bring the specifics to a fee-only fiduciary, who can tell you how much of your savings — if any — belongs in a SPIA.

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