Annuity or Invest It Yourself?

It is the annual income the annuity pays divided by the lump sum it costs. A $500,000 annuity paying $2,950/month pays $35,400/year, a 7.1% payout rate. Note this is not an interest rate — it includes return of your own principal plus a 'mortality credit' that pools risk across everyone in the annuity.

Get quotes from several highly-rated insurers (look for A.M. Best ratings of A or better) on the same date, because annuity rates move with interest rates. The calculator's implied figures help, but the real test is comparing identical quotes from multiple carriers for the same age and payout structure.

The calculator estimates the internal rate of return the annuity delivers if you live to your life expectancy. If you can confidently earn more than that after taxes and fees by investing, doing it yourself may leave you ahead — but you take on market and longevity risk that the annuity removes.

Outliving your money. An annuity guarantees income no matter how long you live or how markets perform. A self-managed portfolio can be depleted by a bad sequence of early returns combined with a long life. That certainty is exactly what you give up for higher expected (but not guaranteed) returns.

You generally give up access to the principal — it is no longer a liquid asset you can tap for emergencies or leave to heirs (unless you buy riders that reduce the payout). You also take on the insurer's credit risk, and most fixed annuities have no inflation protection, so level payments lose purchasing power over time.

Rarely. A common approach is to annuitize just enough to cover essential expenses (the 'income floor'), combined with Social Security, and invest the rest for growth and flexibility. This is sometimes called the 'floor and upside' strategy. A fee-only advisor can help size it.