Whether or not an annuity is a good deal for you depends upon how much monthly income you will receive in exchange for your expenditure of cash.
For example, if a 65-year-old gives up $100,000 of their 401(k) and receives a monthly income of $1,000 in return, that would be an outstanding deal. Conversely, if that same 65-year-old receives just $100 per month in exchange for that same $100,000, that would be a horrible investment.
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So what determines how much income a person will receive? There are several factors, but the largest one—and the one that may have the greatest impact in the near term—is interest rates.
When a person purchases an annuity, whether from a financial institution or through their employer's 401(k), the insurance company takes those dollars, pools the money with other annuity purchasers and invests those dollars in lower-risk investments. Most of the money will be invested in high-grade bonds, loans and mortgages.