Payout Rates

What Is a Payout Rate in a Guaranteed Income Annuity?

A Payout Rate is the percentage of your money that an insurance company pays you each year as guaranteed income for life (or a set number of years).

Think of it as:

  "How much income will I receive each year from the money I give to the insurance company?"
 

Basic Example:

Let’s say you buy a guaranteed income annuity with $100,000 and the payout rate is 5%.

• The insurance company will pay you $5,000 per year for life (or for the term of the contract), depending on your choices.
   
• If it's for life, they keep paying even if you live 30+ years.
   

So:

$100,000 x 5% = $5,000/year guaranteed income
 

 What Affects the Payout Rate?

Several things influence your payout rate:

• The older you are when income starts, the higher the payout rate.
   
• Why? Because the insurance company expects to pay you for fewer years.
   

• Immediate income annuities start paying right away (lower payout rate).
   
• Deferred income annuities start later, which usually gives you a higher payout.
   

• Single Life pays just for your life — higher payout.
   
• Joint Life pays as long as you or your spouse lives — lower payout (because it may last longer).
   

• Adding features like inflation protection or guaranteed minimums may reduce the payout rate slightly because they cost more to provide.
   

 Important Clarification:

A 5% payout rate does not mean you’re earning 5% interest.

• It’s a combination of interest and return of your own principal.
   
• It’s about how much income you get — not how much your money grows.
   

• They help you plan retirement income you can’t outlive.
   
• The higher the payout rate, the more monthly income you’ll get for the same investment.
   
• Guaranteed income brings predictability, especially when markets are volatile.