Comparing $675,000 Annuity vs. Dividend Portfolio Income

Annuity vs. Dividend Income: The Basics

For a 65-year-old, a single-premium immediate annuity typically provides a payout in the range of 6.5% to 7.5% of the principal. On $675,000, that translates to roughly $43,000 to $50,000 per year, or about $3,600 to $4,200 per month. The exact amount depends on factors like age, gender, state of residence, and whether a survivor benefit or period-certain rider is included. The payment is fixed for life, but it does not increase with inflation, and the principal is not returned to heirs unless an additional rider is purchased.

In contrast, a dividend portfolio can be structured to provide income that grows over time. The starting yield and growth rate determine how quickly the income can surpass the annuity's fixed payment.

Dividend Portfolio Scenarios

Three tiers of dividend strategies illustrate the range of outcomes for the same $675,000 investment.

• Conservative tier (3-4% yield): At a 3.5% yield, annual income is $23,625, or about $1,970 per month. This tier includes dividend growth stocks like Procter & Gamble (NYSE: PG), which pays $1.0885 quarterly after its 2026 raise, and Johnson & Johnson (NYSE: JNJ), with a $1.34 quarterly dividend and 64 consecutive years of increases. NorthWestern Energy Group (NASDAQ: NWE) yields 3.8% as a regulated utility.
• Moderate tier (5-7% yield): At a 6% yield, annual income is $40,500, or $3,375 per month. Verizon (NYSE: VZ) yields 6.1% with a $2.83 annualized dividend. Covered-call funds, such as JPMorgan's Nasdaq Equity Premium Income ETF, also fall in this tier but may cap upside during rallies.
• Aggressive tier (8-12% yield): At a 10% yield, annual income is $67,500, or $5,625 per month, which exceeds any annuity quote. However, this tier carries risks of principal erosion and distribution cuts, as seen with business development companies and mortgage REITs.

Growth and Long-Term Comparison

Dividend growth can significantly boost income over time. For example, Procter & Gamble raised its quarterly payout from $0.285 in 1999 to $1.0885 today, and Johnson & Johnson went from roughly $0.25 quarterly in 1999 to $1.34 in 2026. Verizon has increased its dividend every year for 27 years, most recently to $0.7075 quarterly. Even a modest 5% annual dividend growth rate doubles income in about 14 years, while the annuity payment remains flat.

Given that core PCE inflation is near the 90.9th percentile of its 12-month range, the fixed annuity payment loses purchasing power over time. Additionally, dividend portfolios offer potential price appreciation: JNJ is up 169% over the past decade, PG 122%, and NWE 75%. Annuity principal is gone at the start.

What it means for income investors

The choice between an annuity and a dividend portfolio depends on individual priorities. An annuity provides guaranteed lifetime income but no growth or legacy value. A dividend portfolio offers growth potential and a transferable asset, but with market risk. The crossover point where dividend income surpasses the annuity's flat payment typically occurs between years 9 and 11, assuming a 3.5% starting yield growing at 6% annually. A balanced approach, annuitizing a portion for baseline income and keeping the rest in dividend growers, may suit many retirees.

Reporting based on: Yahoo Finance. Figures verified against market data where available.