Estimate your potential income stream from a Fidelity immediate annuity. Input your details to see projected payouts and understand the key factors involved.
Immediate Annuity Payout Calculator
Enter the total amount you wish to invest.
Enter the age of the primary annuitant.
Life Only (No Period Certain)
5 Years Certain
10 Years Certain
15 Years Certain
20 Years Certain
Choose how long you want guaranteed payments. 'Life Only' pays for your lifetime.
Monthly
Quarterly
Semi-Annually
Annually
Select how often you want to receive payments.
This is an assumption for calculation; actual rates vary.
Your Estimated Annuity Payout
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Estimated Annual Payout —
Estimated Monthly Payout —
Payout Factor —
Formula Used: Payout is calculated based on the investment amount, annuitant's age, chosen payout period, payment frequency, and an assumed interest rate. A payout factor is derived, which is then multiplied by the investment amount to determine the periodic payment.
Projected Payout Over Time
Visualizing the estimated total payouts over the selected payout period.
Annuity Payout Details
Period
Payment Received
Cumulative Payout
Remaining Investment Value (Assumed Growth)
What is a Fidelity Immediate Annuity?
A Fidelity immediate annuity, also known as a single-premium immediate annuity (SPIA), is a financial contract between you and an insurance company (like Fidelity, though Fidelity itself doesn't issue annuities directly; they partner with providers). You pay a lump sum premium upfront, and in return, the insurance company guarantees a stream of income payments to you, starting almost immediately, typically within a year. This income can last for a specified period or for the rest of your life, or a combination of both. It's a popular tool for individuals seeking predictable income in retirement, often to cover essential living expenses.
Who should use it: Immediate annuities are most suitable for retirees or those nearing retirement who want to convert a portion of their savings into a guaranteed income stream. This is particularly beneficial for individuals who are risk-averse, concerned about outliving their savings, or want to ensure they can cover basic needs like housing, food, and healthcare without worrying about market fluctuations. It's a way to de-risk a portion of your retirement portfolio.
Common misconceptions:
Annuities are only for the wealthy: While large premiums are common, even smaller amounts can provide a supplemental income.
Annuities are complex and only for experts: Immediate annuities are relatively straightforward compared to other annuity types. The core concept is simple: lump sum for guaranteed income.
You lose access to your money: With an immediate annuity, you typically surrender the principal for the income stream. However, options like "period certain" provide payouts for a guaranteed number of years, and beneficiaries receive remaining payments if you pass away during that period. Riders can also offer limited access, though often at a cost.
Fidelity directly issues all annuities: Fidelity often acts as a distributor or advisor, partnering with various insurance companies that underwrite and issue the actual annuity contracts.
Immediate Annuity Payout Formula and Mathematical Explanation
The calculation for an immediate annuity payout involves actuarial principles to determine the present value of a future stream of payments, considering life expectancy and interest rates. While the exact formula used by insurance companies is complex and proprietary, a simplified model can illustrate the core concepts.
The fundamental idea is to calculate a "payout factor" – the amount paid per unit of investment (e.g., per $1,000 invested). This factor depends on several variables:
Simplified Payout Factor Calculation Concept:
The payout factor is essentially the present value of an annuity-certain or a life annuity, adjusted for the specific payout frequency and the annuitant's life expectancy. A common approach involves calculating the present value of each expected future payment and summing them up.
Let:
PV = Present Value (Investment Amount)
PMT = Periodic Payment Amount
r = Periodic Interest Rate (Annual Rate / Periods per Year)
n = Total Number of Payments (Periods per Year * Years of Payout)
i = Annuitant's Age
E[Life] = Expected Remaining Lifespan (based on actuarial tables)
For a simplified calculation, we can approximate the payout factor (PF) as:
PF = PV / (Sum of Present Values of all expected future payments)
The present value of a single payment is PMT / (1 + r)^k, where k is the payment number.
A more practical approach for estimation uses actuarial present value factors. The payout factor is often derived from tables or complex calculations that consider mortality rates. For our calculator, we use a common financial formula that approximates the periodic payment (PMT) based on the present value (PV), interest rate (r), and number of periods (n):
This formula is adapted for immediate annuities, incorporating mortality assumptions implicitly through the "payout factor" which is influenced by age and life expectancy. The calculator uses a simplified model where the payout factor is estimated based on the inputs, and then:
Age of the person upon whom the annuity payments depend.
Years
50 – 90+
Payout Period
Duration of guaranteed payments (e.g., Life Only, Years Certain).
Years / Life
Life Only, 5, 10, 15, 20 years
Payment Frequency
How often payments are received.
Times per Year
1, 2, 4, 12
Assumed Annual Interest Rate
The rate used to discount future payments (reflects insurer's investment returns and market conditions).
% per year
2.0% – 5.0% (varies significantly)
Payout Factor
The calculated income per unit of investment (e.g., per $1,000).
Currency per Unit
Varies widely based on inputs
Estimated Periodic Payout
The calculated income received per payment period.
Currency
Varies widely
Practical Examples (Real-World Use Cases)
Let's explore how the Fidelity immediate annuity calculator can be used with practical scenarios:
Example 1: Guaranteed Income for Essential Expenses
Scenario: Sarah, age 70, has $200,000 in savings she wants to use to supplement her Social Security and pension to cover her essential living costs. She wants a guaranteed income for life and chooses a 10-year period certain for her beneficiaries.
Inputs:
Investment Amount: $200,000
Annuitant Age: 70
Payout Period: 10 Years Certain
Payment Frequency: Monthly
Assumed Annual Interest Rate: 3.8%
Calculator Output (Illustrative):
Primary Payout (Monthly): $1,150
Estimated Annual Payout: $13,800
Estimated Monthly Payout: $1,150
Payout Factor: $5.75 per $1,000 invested
Financial Interpretation: Sarah can expect to receive approximately $1,150 per month for the rest of her life. If she passes away within the first 10 years, her beneficiaries will continue to receive the monthly payments for the remainder of that 10-year period, totaling $138,000 if she lives less than 10 years from the start date. This provides her with a predictable income floor for her essential expenses.
Example 2: Maximizing Payout with Shorter Certainty Period
Scenario: John, age 65, has $500,000 in a CD maturing soon. He wants to annuitize a portion to guarantee income but is less concerned about leaving a large death benefit, prioritizing higher immediate income. He opts for a life-only payout.
Inputs:
Investment Amount: $500,000
Annuitant Age: 65
Payout Period: Life Only
Payment Frequency: Annually
Assumed Annual Interest Rate: 4.2%
Calculator Output (Illustrative):
Primary Payout (Annual): $31,500
Estimated Annual Payout: $31,500
Estimated Monthly Payout: $2,625
Payout Factor: $63.00 per $1,000 invested
Financial Interpretation: By choosing a life-only payout (no period certain), John secures a higher annual income of $31,500 compared to scenarios with guaranteed periods. This higher payout reflects the fact that payments cease upon his death, transferring the longevity risk entirely to the insurance company. This strategy is suitable if his primary goal is maximizing lifetime income and he has other assets for potential beneficiaries.
How to Use This Fidelity Immediate Annuity Calculator
This calculator is designed to provide a quick estimate of potential income from an immediate annuity. Follow these steps:
Enter Investment Amount: Input the total sum of money you plan to invest in the annuity.
Specify Annuitant Age: Enter the age of the primary individual upon whom the annuity payments will be based. Age is a critical factor in determining life expectancy and thus payout amounts.
Choose Payout Period: Select your desired payout structure.
Life Only: Payments continue for your lifetime, offering the highest potential payout but ceasing upon death.
Years Certain: Payments are guaranteed for a specific number of years (e.g., 10, 20). If you pass away during this period, payments continue to your beneficiaries until the end of the term.
Select Payment Frequency: Choose how often you want to receive payments (monthly, quarterly, semi-annually, or annually). More frequent payments generally result in slightly lower individual payment amounts due to the time value of money.
Input Assumed Interest Rate: Enter an assumed annual interest rate. This reflects the general market interest rate environment and the insurer's expected investment returns. Note that this is an assumption for calculation; actual rates offered by insurers will vary.
Calculate Payout: Click the "Calculate Payout" button.
How to Read Results:
Primary Highlighted Result: This typically shows the most common payout frequency (e.g., monthly or annual) for easy comparison.
Intermediate Values: These provide breakdowns like the annual payout, monthly payout, and the "Payout Factor" (income per $1,000 invested), which helps in comparing different annuity offers.
Table and Chart: The table shows a year-by-year projection of payments and the assumed remaining value of the investment (if it were still growing), while the chart visualizes the payout stream over time.
Decision-Making Guidance: Use these estimates as a starting point. Compare the results with quotes from multiple reputable insurance providers. Consider your personal financial situation, risk tolerance, and need for guaranteed income versus potential legacy for heirs. Remember that this calculator provides an estimate; actual quotes will depend on the specific insurer, prevailing rates at the time of purchase, and your individual health and financial circumstances.
Key Factors That Affect Immediate Annuity Results
Several critical factors influence the payout amount you can receive from an immediate annuity. Understanding these helps in evaluating quotes and making informed decisions:
Annuitant's Age and Gender: Younger annuitants generally receive lower payouts because the income stream is expected to last longer. Statistically, women tend to live longer than men, so for the same age, a female annuitant might receive a slightly lower payout than a male annuitant.
Life Expectancy Assumptions: Insurers use actuarial tables to estimate life expectancy. Changes in these tables or the insurer's specific longevity risk assessment impact payouts. Longer life expectancy assumptions lead to lower periodic payments.
Interest Rate Environment: The assumed interest rate used in the calculation is crucial. Higher prevailing interest rates allow insurers to offer higher payouts because they can potentially earn more on the invested premium. Conversely, low-rate environments result in lower annuity payments. This is often the most significant variable factor.
Payout Option Chosen (Period Certain vs. Life Only): Opting for a "period certain" (e.g., 10 or 20 years) guarantees payments for that duration, even if you pass away earlier. This feature reduces the potential payout compared to a "life only" option, where payments cease upon death, maximizing the income for the annuitant's lifetime.
Payment Frequency: Receiving payments more frequently (e.g., monthly vs. annually) typically results in a slightly lower amount per payment. This is because the insurer is distributing the same total annual amount over more periods, and the portion of the principal that could have earned interest is paid out sooner.
Inflation Protection: Standard immediate annuities do not typically include inflation adjustments. If you choose an inflation rider (an optional feature that increases payments over time, often linked to the CPI), your initial payout will be lower to account for these future potential increases.
Annuity Provider's Financial Strength: The claims-paying ability and financial stability of the insurance company issuing the annuity are paramount. While not directly affecting the calculation formula, it impacts the long-term security of your guaranteed income. Always choose highly-rated insurers.
Fees and Commissions: While immediate annuities often have fewer explicit fees than variable annuities, the insurer's profit margin and operational costs are built into the payout rate. Be aware that some distribution channels might involve commissions that could reduce the net payout to you.
Frequently Asked Questions (FAQ)
What is the difference between an immediate annuity and a deferred annuity?
An immediate annuity provides income payments starting almost right away (within a year) after you purchase it with a lump sum. A deferred annuity, on the other hand, allows your investment to grow tax-deferred for a period before payments begin, typically at a later date, often used for retirement accumulation.
Can I get my principal back from an immediate annuity?
Generally, no. When you purchase an immediate annuity, you are exchanging your principal for a guaranteed stream of income. While "period certain" options ensure payments continue for a set term, the principal itself is not typically refundable in a lump sum after the contract is issued.
What happens to the money if I die shortly after purchasing an immediate annuity?
This depends on the payout option you choose. If you selected "Life Only," payments stop upon your death. If you chose a "period certain" (e.g., 10 years), payments will continue to your beneficiaries for the remainder of that guaranteed period. Some annuities also offer a "period certain with cash refund" or "period certain with installment refund" option, which provides additional benefits to beneficiaries.
Are immediate annuity payments taxable?
The tax treatment depends on how the annuity was funded. If purchased with non-deductible (after-tax) contributions, only the "earnings" portion of each payment is taxable income. If purchased with pre-tax dollars (e.g., from an IRA rollover), the entire payment may be taxable as ordinary income. Consult a tax advisor for personalized guidance.
How does Fidelity help with immediate annuities?
Fidelity often serves as a platform or advisor, providing access to immediate annuity products from various insurance carriers. They can help you compare options, understand features, and facilitate the purchase process, leveraging their investment expertise to guide you toward suitable choices based on your retirement goals.
Can I annuitize only a portion of my savings?
Yes, absolutely. It's common practice to annuitize only a portion of your retirement assets to cover essential expenses, while keeping the remainder invested in other vehicles for growth potential, liquidity, or legacy purposes. This strategy is known as "longevity insurance."
What is a "payout factor"?
The payout factor is a key metric used in the annuity industry. It represents the amount of income paid per unit of investment, typically expressed as dollars per $1,000 invested. For example, a payout factor of $6.00 means you would receive $6 for every $1,000 you invest. Comparing payout factors is an effective way to compare offers from different annuity providers.
How do market downturns affect my immediate annuity?
A true immediate annuity's payout is generally not directly affected by market downturns once the contract is issued, especially if it's a fixed annuity. The income stream is guaranteed by the insurance company based on the initial contract terms and the insurer's financial strength. This stability is a primary benefit compared to market-dependent investments.