How Much Retirement Income Can You Buy With a $200,000 Annuity?

As you enter retirement, you may be dependent largely on Social Security income and the nest egg you've amassed. Social Security is critical for most of us, but it's not that generous. The average monthly retirement benefit was recently around $1,841, or about $22,000 over a year, as of September.

Still, Social Security income has a lot to recommend it -- it will arrive regularly for the rest of your life, and it's even adjusted for inflation regularly, too. Your nest egg, conversely, if it's invested in stocks, bonds, and/or mutual funds, will likely swell or shrink from year to year along with the market and/or interest rates. If you'd rather have more certain income, you should consider annuities.

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What's an annuity?

With an annuity, you will typically pay an insurance company a significant lump sum (or a series of payments) and in exchange, you'll receive regular payments for a specified period -- which could be the rest of your life and the rest of your spouse's life, too. You can also have an annuity only pay for a specified number of years instead of the rest of your life. Annuity payments can begin immediately or later.

Annuities aren't protected by the FDIC or another agency, so be sure you're buying only from highly rated insurers, and consider splitting your purchase across a few, just to play it safer.

You may be able to buy an annuity with money from a tax-advantaged retirement account or from your savings. Also, you can often pay more for an annuity (or accept less from it) in exchange for extras such as having it increase future payments regularly in order to try to keep up with inflation.

Kinds of annuities

There are many kinds of annuities, some simpler, some more complex, and some with restrictive terms and significant fees. So it's smart to learn a lot more about annuities before buying one. Here's a brief review of the major distinctions you'll run across:

• Immediate vs. deferred annuities: Immediate annuities start paying you quite soon after you buy them. Deferred annuities are designed to start paying you at some point in the future. Since the insurance companies have your money for longer before they start paying you, you'll get bigger payouts from deferred annuities. Deferred annuities can help you not run out of money later in life. You might, for example, buy one at age 65 that starts paying you at age 80 or 85.
• Fixed vs. variable vs. indexed annuities: Fixed annuities are generally the most simple and straightforward kind of annuity, with their payments very dependent on prevailing interest rates. Rates have been relatively high lately, so this is a better time to buy a fixed annuity than it has been in recent years. A fixed annuity offers a specified payment for a specified period (possibly the rest of your life). A variable annuity offers payments that are determined in large part by how money that you have invested performs. Indexed annuities tie payments to one or more indexes, such as the S&P 500. Each of these kinds of annuities has its own pros and cons, and different levels of fees -- and risks, too.

There are even annuities that can work as long-term care insurance -- paying more than the usual benefit if and when you need long-term care. (There are also hybrid life insurance policies addressing long-term care.)

How much do annuities pay?

The table below will give you an idea of the kind of lifetime income you may be able to buy via an immediate fixed annuity costing $200,000 these days, depending on who you are. You may find better offers by shopping around.

Source: immediateannuities.com.

Women typically get quoted lower rates because they tend to live longer. According to the Centers for Disease Control and Prevention, life expectancy for men in the U.S. was recently 73.5 years and 79.3 years for women.

Note that same-sex couples are generally treated the same when it comes to annuities. This wasn't always the case, but since several landmark Supreme Court rulings in 2014, married couples are to be treated equally under the law.

The table above should help you see how much income, approximately, you may be able to buy for yourself for your retirement. Annuities won't serve everyone equally well, but they can be great ways to set up reliable (and possibly inflation-resistant) income for yourself in retirement, beyond Social Security income.

As you plan for your retirement, estimating how much income you'll need in retirement and how you'll get it, do keep annuities in mind. Perhaps consult a financial advisor, too, to help you decide whether you might want to buy one (or more). Once you have your plan, stick to it -- saving sufficiently and investing effectively for many years.