Fazlur Rahman
An immediate annuity is a contract with an insurance company that converts a lump sum into a guaranteed income stream that starts within 30 to 90 days of the purchase. The payout rate in 2026 is 5 to 8 percent annually, depending on the age at purchase, the premium size, and the annuity type. A 65-year-old with 100,000 dollars will receive 500 to 700 dollars per month for life.
How the payout rate works
The payout rate is the annual income divided by the premium. For a 100,000 dollar premium and a 6 percent payout rate, the annual income is 6,000 dollars, or 500 dollars per month. The rate is higher for older ages because the life expectancy is shorter, which means the insurance company expects to pay the income for fewer years. The rate is also higher for larger premiums because the administrative cost is a smaller percentage of the larger premium.
The right call is to compare payout rates from at least three highly rated annuity companies, because the rates vary by 5 to 15 percent between the lowest and the highest quote for the same age and premium.
Payout rates by age (2026, 100,000 dollar premium)
| Age | Monthly payout (life only) | Annual payout | Payout rate |
|---|---|---|---|
| 55 | $450 to $550 | $5,400 to $6,600 | 5.4% to 6.6% |
| 60 | $490 to $600 | $5,880 to $7,200 | 5.9% to 7.2% |
| 65 | $540 to $670 | $6,480 to $8,040 | 6.5% to 8.0% |
| 70 | $610 to $760 | $7,320 to $9,120 | 7.3% to 9.1% |
| 75 | $700 to $880 | $8,400 to $10,560 | 8.4% to 10.6% |
| 80 | $820 to $1,050 | $9,840 to $12,600 | 9.8% to 12.6% |
The table is a national average. The actual quotes depend on the insurance company, the state, and the annuity type. A period-certain or life-with-period-certain annuity has a lower payout rate than a life-only annuity, in exchange for the protection of the principal.
Annuity types
The right call depends on the buyer goals. A life-only annuity has the highest payout rate but forfeits the principal at death. A period-certain annuity pays for a fixed period (5 to 20 years) and continues to pay the beneficiary if the annuitant dies. A life-with-period-certain annuity pays for the longer of life or the period certain, and is the right call for most buyers who want both lifetime income and principal protection.
Indexed and variable immediate annuities
An indexed immediate annuity links the payout to an equity index, with a floor of 0 percent and a cap of 4 to 8 percent on the annual growth. The payout rate is lower than a fixed immediate annuity, but the upside is the potential for higher income in a strong market. The right call is an indexed annuity for a buyer who wants some market participation without the downside risk.
A variable immediate annuity allows the buyer to choose the investment sub-accounts, with the payout varying based on the performance. The risk is on the buyer, and the right call is a variable annuity only for a buyer who is comfortable with investment risk and is using the annuity for the lifetime income floor.
When an immediate annuity makes sense
An immediate annuity makes sense for a retiree who has enough other assets to cover emergencies and wants a guaranteed lifetime income floor. The right call is to use the immediate annuity to cover the essential expenses, and to keep the discretionary assets in a diversified portfolio.
The right call is to avoid using an immediate annuity for the entire retirement portfolio, because the inflation protection is limited and the principal is forfeited at death in a life-only annuity.
Inflation protection
A standard immediate annuity has a fixed payout, which means the purchasing power declines with inflation. The right call is to add a cost-of-living adjustment (COLA) rider, which increases the payout by 1 to 3 percent per year. The trade-off is a lower initial payout rate, typically 10 to 20 percent lower than a non-COLA annuity.
The right call is to balance the initial payout with the inflation protection, depending on the buyer age and the buyer expected lifespan. A 65-year-old with a 25-year life expectancy is more likely to need the inflation protection than a 75-year-old with a 12-year life expectancy.
Cheapest way to buy
The cheapest way to buy an immediate annuity in 2026 is through a no-load or low-load platform like ImmediateAnnuities.com or a direct annuity platform, which quotes rates from multiple insurance companies. The right call is to avoid commissioned agents who add a load to the premium, and to compare quotes from at least three highly rated companies.
The honest short version
An immediate annuity in 2026 has a payout rate of 5 to 8 percent annually, depending on the age at purchase and the premium size. A 65-year-old with 100,000 dollars will receive 500 to 700 dollars per month for life. The right call is to use the annuity to cover the essential expenses, to add a COLA rider for inflation protection, and to compare quotes from at least three highly rated companies.
