How much does a $1 million annuity pay monthly?

Adding a $1 million annuity to your retirement plan could pay off, but it's important to understand the full picture before investing. the_burtons/Getty Images

With interest rates still elevated and recession concerns casting a shadow over the markets, many Americans are seeking financial products that can offer security and stability in retirement. Among the most talked-about options right now? Annuities. These financial contracts turn your lump sum into a predictable stream of monthly income. And, while that can be a smart tool to use for nearly any retiree, it can be especially valuable when there are questions about where the economy may be headed.

You can purchase annuities with varying amounts, but a $1 million annuity, in particular, can be a retirement game-changer. It's a significant investment, and for many, it's the product of a lifetime of disciplined saving or the sale of a major asset like a home or business. But before putting a million dollars into an annuity, it's crucial to understand exactly how much you can expect to receive back each month, and what factors will influence those payouts.

So what kind of income can you expect from a $1 million annuity? That answer isn't as straightforward as you might think. Let's take a look at the numbers — as well as the factors that will shape your potential monthly income — to help you determine if this retirement tool fits with your financial goals.

Find out how to add an annuity to your retirement plan today.

How much does a $1 million annuity pay monthly?

A $1 million annuity can provide monthly payments ranging from around $5,800 to more than $10,600 right now, according to an analysis of Cannex data by Annuity.org. Here's how that breaks down:

A 60-year-old man purchasing a lifetime immediate annuity could expect about $5,909 per month on a $1 million annuity.A 65-year-old woman, who statistically has a longer life expectancy, would receive slightly less — around $6,568 per month on a $1 million annuity.A 70-year-old man, due to a shorter remaining life expectancy, could receive up to $7,697 monthly on a $1 million annuity.A 75-year-old man would receive the highest payout from this group, around $10,616 per month, since the insurer is only expecting to make payments for a limited number of years on a $1 million annuity.

So why do these figures vary so much?

The key lies in how insurance companies calculate risk and life expectancy. The basic rule is that the older you are when you begin collecting annuity payments, the shorter your expected payout period, which translates to higher monthly income. Conversely, the younger you are, or if you're a woman, and thus statistically likely to live longer, your monthly payout is lower to account for a longer payout timeline.

But that's just one part of the equation. Other important considerations that impact how much you'll get each month include:

Annuity type: A single premium immediate annuity starts paying income almost right away. In contrast, deferred annuities allow your investment to grow before payouts begin.Contract structure: A lifetime-only annuity pays the most but ends payments when you die, even if that's just a few years after purchasing. If you add a period certain or a joint-life option, your monthly income will be reduced.Inflation protection: Some annuities offer an inflation adjustment rider that boosts payments annually, typically by 2% to 3%. The tradeoff? Your starting payment is significantly lower.

Another big factor is the interest rate environment at the time of purchase. Insurance companies invest your lump sum in fixed-income securities, and when interest rates are high, they can earn more on those investments and pass a portion of that return back to you in the form of higher monthly payouts. That's why annuity buyers today are often seeing better deals than those who locked in contracts during lower-rate years.

Start comparing your top annuity options online now.

Why timing and structure matter more than you think

It's easy to get caught up in the potential monthly income, but the amount you invest and how and when you choose to start drawing payments are equally important. For example, these factors could also influence your payout:

Immediate vs. deferred annuities: An immediate annuity begins paying income almost right away. On the other hand, a deferred annuity delays payouts, allowing your principal to grow over time. The longer you wait, the higher your monthly payments will be when they kick in.

Inflation protection: Some annuities offer cost-of-living adjustments, which help your income keep pace with inflation. While this feature can protect your purchasing power long-term, it starts your monthly payments at a lower amount. 

Single life vs. joint life annuities: A single life annuity pays out only during your lifetime, meaning payments stop when you die. A joint life annuity, however, continues paying to your spouse or partner after your death. It's a great option for couples, but the monthly income is typically lower than a single life annuity to account for the longer combined life expectancy.

Market interest rates at the time of purchase: Higher interest rates generally translate into higher monthly annuity payouts.

The bottom line

A $1 million annuity can deliver a steady stream of monthly income ranging from about $5,800 to over $10,600, depending on your age, gender and annuity structure. That's a substantial amount, and for many retirees, it's enough to comfortably cover living expenses without worrying about outliving their money.

But as tempting as those high monthly payouts may be, it's still important to consider all the factors before investing. So, make sure you carefully compare options, consider the trade-offs of each feature or rider and make sure you're choosing the right structure. After all, the highest payout isn't always the best fit for your long-term financial goals.

Angelica Leicht

Angelica Leicht is the senior editor for the Managing Your Money section for CBSNews.com, where she writes and edits articles on a range of personal finance topics. Angelica previously held editing roles at The Simple Dollar, Interest, HousingWire and other financial publications.