What is annuity?
Annuity is a contract that a person enters into with an insurance company. The individual, through a lump sum or series of payments, signs the contract, and the life insurance company pays the person the agreed amount at set intervals.
Fixed annuity
Let's say you are in the fixed annuity market and choosing fixed term rather than lifetime payments. With this approach, your final payments will depend on the length of the savings period and insurer's interest rate.
If you purchase a fixed annuity with a principal of $5 million, your monthly payment will likely be around $30,000 for a 20-year term and about $47,000 for a 10-year term.
Variable annuity
Variable annuity includes only one variable, the insurer's interest rate. In this policy, it entirely depends on the stock market and the strategy you and your financial adviser choose. Many choose indexed annuity, in which the insurance company pays interest in accordance with the stock index performance (for example, the S&P 500).
In this case, it is impossible to calculate payments for several years in advance, as they are completely dependent on the state of the economy.
Is it possible to retire with a $5 million annuity?
It is possible, but one needs to clearly plan future premiums.
It is important to bear in mind that annuity is only a part of a future retirement income. There is no need to invest all available funds in a future pension having an average income in difficult times. Insurance companies are presently offering various ways of investments. However, annuities provide a guarantee of a prosperous old age.
Source: https://finance.yahoo.com/news/5-million-annuity-pays-much-130001524.html
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