Question 1

How does an annuity payout work?

Accepted Answer

An immediate annuity converts a lump sum into fixed periodic payments over a set term or lifetime. Payments combine return of your principal plus interest — computed with the same amortization math as a loan, but paying you instead of the bank.

Question 2

What is a good annuity rate?

Accepted Answer

Fixed annuity rates track long-term interest rates and typically run 4–6% in recent years. Compare the internal rate against Treasury yields and CD rates — insurers add fees, so quoted payout rates are not directly comparable to interest rates. Shop multiple insurers.

Question 3

What is the difference between period-certain and lifetime annuities?

Accepted Answer

Period-certain annuities pay for a fixed number of years (what this calculator models). Lifetime annuities pay until death — payments are based on life expectancy, so they are typically smaller but eliminate longevity risk. Many retirees blend both.

Question 4

Are annuity payments taxable?

Accepted Answer

For annuities bought with after-tax money, each payment is part taxable interest and part tax-free return of principal (the exclusion ratio). Annuities inside traditional IRAs or 401(k)s are fully taxable as ordinary income when paid out.

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