Here's what a typical first phone call sounds like at our office. Someone calls in — usually just retired or about to be — and says something like, "I've got some money saved up, and I'm terrified of running out. How do annuities work?"
We hear it three or four times a week. And the answer is simpler than most websites make it sound.
How Do Annuities Work? The Short Version
You give an insurance company a lump sum. They give you a guaranteed monthly check for the rest of your life. That's it.
No stock market. No management fees. No wondering if your money will last. You hand over, say, $100,000 to a company like New York Life or MassMutual, and they deposit income into your bank account every single month until the day you die. Whether that's at 72 or 102.
The product that does this is called a Single Premium Immediate Annuity, or SPIA. It's the simplest financial product in retirement planning, and in our experience, it's the most effective one too.
What a Real Conversation Looks Like
Last month we worked with a couple from Ohio. Both 65, just retired. They had about $340,000 in an IRA and were getting $2,800 combined from Social Security. Their monthly expenses ran around $4,500.
That's a $1,700 gap. Every month. For the rest of their lives.
We ran quotes across eight carriers. The best rate came from Pacific Life — a joint-and-survivor SPIA on $200,000 that paid $1,082 per month. Both of them covered. They kept $140,000 liquid for emergencies and travel.
Gap closed. No market risk. No annual fees. They told us they slept better that first week than they had in months.
That's how annuities work when you strip away the noise.
Current Rates for a 65-Year-Old
Rates change with interest rates, but here's what $100,000 buys a 65-year-old man in a life-only SPIA as of early 2026:
| Carrier | AM Best Rating | Monthly Income | Annual Income |
|---|---|---|---|
| Pacific Life | A+ | $638 | $7,656 |
| New York Life | A++ | $631 | $7,572 |
| MassMutual | A++ | $625 | $7,500 |
| Prudential | A+ | $619 | $7,428 |
A 65-year-old woman would receive slightly less — roughly $595 to $610 per month — because women live longer on average. See today's live rates here.
Those numbers scale proportionally. Put in $200,000 and the income doubles. Put in $500,000 and you've essentially built yourself a pension.
The Mechanics Behind the Curtain
Insurance companies aren't doing charity work. They make money on annuities through what actuaries call mortality credits.
Here's how it actually works. The carrier pools money from thousands of annuity holders. Some people will live to 95. Some won't make it past 74. The premiums from people who die earlier effectively subsidize the payments to people who live longer. This is called risk pooling, and it's the same math that makes all insurance work.
The carrier also invests your premium in bonds and other fixed-income securities. The spread between what they earn on investments and what they pay you is their profit margin. For a well-run carrier, that margin is thin — which is why annuity rates are competitive.
Most websites won't explain this part. But we think you should understand what you're buying.
What About Other Types of Annuities?
Fair question. There are several kinds of annuities out there, and we should be upfront about why we focus on one.
Variable annuities tie your returns to the stock market. They charge 2–3% in annual fees, they're complicated, and you can lose money. We don't sell them.
Fixed indexed annuities are a hybrid — market-linked returns with a floor of 0%. They're not terrible, but the caps, participation rates, and spread fees make them hard to evaluate. And they don't provide immediate income.
Deferred annuities grow your money tax-deferred and convert to income later. They have their place if you're 55 and planning ahead.
But for someone who's retired or about to retire and needs income now, a fixed life annuity — the SPIA — is the most direct solution. No accumulation phase, no subaccounts, no riders with extra fees. Just income. For a deeper comparison, see our guide to annuity types.
Five Factors That Determine Your Payout
- Your age. Older buyers get higher monthly payments. A 70-year-old receives more than a 60-year-old on the same premium because the carrier expects to make fewer payments.
- Your gender. Women receive slightly lower payments due to longer life expectancies.
- How much you invest. Income scales linearly. $200K in gets you roughly double the income of $100K.
- The carrier. Rates vary meaningfully between companies. We've seen differences of 8–12% for the same person. That's why we always quote multiple carriers.
- Interest rates. Annuity payouts move with Treasury yields and corporate bond rates. The current rate environment is favorable compared to the 2010s.
Payout Options: What Happens When You Die
This is the question everyone asks, and it's the right one.
With a life-only payout, payments stop when you die. Full stop. That option pays the most per month because the carrier takes on less risk.
Most of our clients don't choose life-only. They choose one of these:
| Option | What Happens | Payment Impact |
|---|---|---|
| Life with 10-Year Certain | If you die in the first 10 years, your beneficiary gets the remaining payments | Slightly lower |
| Life with 20-Year Certain | Same, but guaranteed for 20 years | Moderately lower |
| Joint & Survivor | Payments continue to your spouse after you die | Lower (covers two lives) |
| Cash Refund | If you die before receiving your full premium back, the remainder goes to your beneficiary | Slightly lower |
We walk every client through these options. There's no wrong answer — it depends on your family situation.
The Tax Angle
If you buy a SPIA with after-tax money (like savings or a brokerage account), part of each payment is considered a tax-free return of your principal. The IRS calls this the exclusion ratio. It can mean 40–60% of your monthly income is tax-free in the early years.
If you use IRA or 401(k) money, the full payment is taxed as ordinary income. Still a clean move — especially since you'd be paying taxes on withdrawals anyway. See our tax guide for the full breakdown.
Common Concerns (And What We Tell People)
"What if the insurance company goes under?"
We only work with carriers rated A or higher by AM Best. New York Life and MassMutual have been paying claims since before the Civil War. Every state also has a guaranty association that protects annuity holders up to $250,000 per carrier. No policyholder of a major A-rated carrier has ever missed a payment.
"What if I need the money back?"
With a SPIA, you're receiving your money back — every month, as income. It's not locked in a vault. But you can't call up and withdraw the whole lump sum. That's why we always tell clients: don't annuitize everything. Keep a portion liquid for emergencies. Most of our clients put 40–60% of their savings into an annuity and keep the rest accessible.
"Can I use my IRA or 401(k)?"
Yes. You can roll IRA or 401(k) funds directly into a SPIA without triggering any taxes on the transfer. The income you receive will be fully taxable as ordinary income — but you'd be paying that tax on IRA withdrawals anyway. It's a clean transaction.
Is This Right for You?
We're biased — we think fixed life annuities are the best retirement income tool available. But they're not for everyone.
They work well if you're between 58 and 80, have at least $50,000 you won't need for emergencies, and want guaranteed income you literally cannot outlive. They don't work if you need full liquidity or have a very short life expectancy.
The best next step is to see real numbers. Our free calculator shows what you'd receive based on your age and investment amount. Takes about 30 seconds. Or call us at 800-747-4201 — we'll run quotes across every major carrier and walk you through it. No cost, no pressure.
That's how annuities work. The complicated version fills textbooks. The version that matters fits in a sentence: guaranteed income, every month, for life.
