For a $1 million annuity, you would pay $1 million as a starting principal. This could be done as a lump sum or through a series of payments over several years. Once the payments start, you'll get a monthly income for the determined period, which could be 20 years, 30 years or a lifetime.
Key Takeaways
Yes, it's possible to retire on $1 million today. In fact, with careful planning and a solid investment strategy, you could possibly live off the returns from a $1 million nest egg.
As of January 2025, with a $1,000,000 annuity, you'll get an immediate payment of $6,000 monthly starting at age 60, $6,608 monthly at age 65, or $7,125 monthly at age 70.
Most financial advisors will tell you that the best age for starting an income annuity is between 70 and 75, which allows for the maximum payout. However, only you can decide when it's time for a guaranteed stream of income.
Can I retire at 55 with $1 million? Yes, you can retire at 55 with $1 million. You will receive a guaranteed annual income of $65,000 starting immediately, utilizing an annuity for the rest of your life. This income will stay the same and never decrease.
The five-year rule requires that the entire balance of the annuity be distributed within five years of the date of the owner's death.
Annuities can provide a reliable income stream in retirement, but if you die too soon, you may not get your money's worth. Annuities often have high fees compared to mutual funds and other investments. You can customize an annuity to fit your needs, but you might need to pay more or accept a lower monthly income.
Annuities have longer durations, but bonds can be reinvested as they mature, so both financial products can be used for the long-term. In general, bonds pay a higher yield than annuities—but not always.
Just 16% of retirees say they have more than $1 million saved, including all personal savings and assets, according to the recent CNBC Your Money retirement survey conducted with SurveyMonkey. In fact, among those currently saving for retirement, 57% say the amount they're hoping to save is less than $1 million.
The safest place to put $1 million dollars would be in a combination of insured bank accounts and conservative investments, such as bonds and CDs, to ensure a balance of liquidity and stability.
The classic approach to doubling your money is investing in a diversified portfolio of stocks and bonds, which is likely the best option for most investors. Investing to double your money can be done safely over several years, but there's a greater risk of losing most or all your money when you're impatient.
At the current Treasury rate of 4.3%, a $1 million portfolio would generate about $43,000 per year, or roughly $3,500 per month. With your Social Security payments that would generate about $6,000, again enough to live comfortably in most places.
Annuities offer numerous features that make them attractive options for high-net-worth individuals. This includes their safety, tax advantages, lack of contribution limits and ability to help diversify a portfolio. An annuity can also help you leave a legacy for your beneficiary.
Qualified annuities are paid with pre-tax money, and all payouts are taxed; while nonqualified annuities are paid with taxed money, and only the earnings are taxed. If you take money out of an annuity before you are 59½ years old, you might have to pay an extra 10 percent IRS penalty.
One of the biggest drawbacks of variable annuities is that they come with fees. This includes a mortality and expense fee, which is typically between 1% and 2% per year in addition to the underlying fund expenses. You also may pay an additional fee for any optional riders you choose.
A relatively small 23% of retirees say their only major income source in retirement is Social Security. Sixty percent of this group say they have enough money to be comfortable, leaving about four in 10 retirees relying only on Social Security who are not financially comfortable.
While there's no federal law setting specific age restrictions for annuity purchases, many annuity companies impose their own age limitations. Typically, these range from a minimum age of 50 to a maximum age between 75 and 95. It's essential to consider these restrictions when exploring your options.
One frequently used rule of thumb for retirement spending is known as the 4% rule. It's relatively simple: You add up all of your investments, and withdraw 4% of that total during your first year of retirement. In subsequent years, you adjust the dollar amount you withdraw to account for inflation.
In some cases, an annuity may pay a set amount of money that can be passed on to a designated heir if money remains in the account when the accountholder dies. The person who inherits can accept the money as a lump sum or in a series of payments.
Most annuity companies allow you to cash out, or surrender, the contract for its current value, or withdraw a portion of the accumulated funds before income payments begin. However, surrender charges will be deducted from the amount you receive.
The answer may surprise you. With inflation, the rising cost of living, and lower employer contributions to pension plans, saving for retirement is anything but easy right now. In fact, only 16% of retirees say they have more than $1 million saved, according to a recent CNBC retirement survey.
The ideal monthly retirement income for a couple differs for everyone. It depends on your personal preferences, past accomplishments, and retirement plans. Some valuable perspective can be found in the 2022 US Census Bureau's median income for couples 65 and over: $76,490 annually or about $6,374 monthly.