Buying an annuity at age 40 could be an ideal step toward securing your retirement. This insurance contract can pay you a steady, guaranteed income based on how much money you put into it.

Fenwick says the main difference between a retirement annuity and a living annuity is that a retirement annuity is invested in pre-retirement while a living annuity involves life post-retirement. You're eligible to benefit from a retirement annuity from 55 years old.

If annuities simply aren't right for you, certain alternatives can provide you with fixed income streams in retirement. Consider certificate of deposit accounts, bonds, retirement income funds, dividend stocks or some combination of these savings and investment vehicles.

An income annuity is not an investment that provides you with a rate of return over a fixed period of time, like a CD. 1. Rather, it's an income product that provides you with fixed monthly income that is guaranteed for life, no matter how the markets perform.

You can also generate a monthly income using fixed annuities. A $500,000 annuity would pay you $29,519.92 per year in interest, or $2,395.83 per month if you prefer to set up systematic withdrawals of interest. These payments assume a guaranteed interest rate of 5.75%.

Most financial advisors will tell you that the best age for starting an income annuity is between 70 and 75, which allows for the maximum payout. However, only you can decide when it's time for a secure, guaranteed stream of income.

Example of an Annuity An example of an immediate annuity is when an individual pays a single premium, say $200,000, to an insurance company and receives monthly payments, say $5,000, for a fixed time period afterward. The payout amount for immediate annuities depends on market conditions and interest rates.

An annuity is a way to supplement your income in retirement. For some people, an annuity is a good option because it can provide regular payments, tax benefits and a potential death benefit. However, there are potential cons for you to keep in mind. The biggest of these is simply the cost of an annuity.

One of the most important benefits of the annuity is the ability to use the value built up during the accumulation period to provide a lump sum payment or to make income payments during the payout period. Income payments are usually made monthly, but you may choose to receive them less often.

More In Retirement Plans An annuity is a contract that requires regular payments for more than one full year to the person entitled to receive the payments (annuitant).

If you purchase your $1,000,000 annuity between the ages of 60 – 70 and start taking payments immediately then you can expect to receive between $4,500 and $6,500 per month for the rest of your life or for the time period of your annuity payout.

“The annual payout is approximately $62,000,” says Wilson Coffman, president of Coffman Retirement Group in Huntsville, Alabama. That comes to about $5,167 per month. Waiting to take payments could increase the amount you receive every month from a $1 million annuity.