Annual income as percentage of premium
Quick Definition: The payout rate is the annual income you receive as a percentage of your annuity premium. A $100,000 annuity with an 8% payout rate delivers $8,000 per year. Rates increase with age since insurance companies expect shorter payout periods for older annuitants.
Payout rates depend on three main factors:
$200,000 Premium, Life Only Option:
| Age | Annual Income | Payout Rate | Monthly Income |
|---|---|---|---|
| 60 | $13,000 | 6.5% | $1,083 |
| 65 | $15,200 | 7.6% | $1,267 |
| 70 | $17,600 | 8.8% | $1,467 |
| 75 | $20,800 | 10.4% | $1,733 |
| 80 | $25,000 | 12.5% | $2,083 |
Adding protections (period certain, joint life) reduces rates by 10-30%.
Payout rate is NOT the same as investment return. It's a mix of your principal coming back plus interest.
Example: 8% payout rate on $100,000 = $8,000/year
| Type | Typical Rate (Age 70) | Basis |
|---|---|---|
| SPIA (annuitized) | 8-9% | Actual premium paid |
| FIA Income Rider | 4-6% | Income base (higher than actual value) |
SPIAs pay more because you give up all access to lump sum. Income riders preserve flexibility but pay less.
Increases payout:
Decreases payout:
To determine if payout rate is fair, calculate break-even:
Formula: 100 / Payout Rate = Years to break even
Examples:
8% payout = 12.5 years to recover premium
10% payout = 10 years to recover premium
6% payout = 16.7 years to recover premium
After break-even, all payments are pure gain.
Payout rates determine annual income from annuitization. Higher rates come from older age, giving up flexibility, and favorable interest rates. Always compare payout rates across multiple insurance companies—they vary significantly. Don't confuse payout rate with investment return; they're fundamentally different concepts.