Quick Read – A $500,000 annuity pays ~$3,125 monthly for life, but that fixed check buys less each year as inflation erodes its purchasing power with no COLA adjustment. – Handing $500,000 to an insurer means the principal is permanently gone, leaving no inheritance, no…
ergency fund, and no flexibility if rates rise further. – The 4% rule’s $1,667 monthly draw starts lower but scales with inflation and historically preserves the full portfolio balance over 30 years. – The pitch from annuity marketers is straightforward. Hand an insurance company $500,000 at age 65, and a single premium immediate annuity will send back roughly $3,125 a month for the rest of your life
Follow the classic 4% rule on that same $500,000, and you draw $1,667 a month in the first year. The annuity looks like it pays almost double. That gap is what makes annuity quotes so persuasive, and it is also where the catch lives.
This article explains why those two numbers do not measure the same thing. The annuity payout is a nominal check for life. The 4% rule is a starting withdrawal from a portfolio that is supposed to keep growing, adjust for inflation, and leave a residual balance.