If you think you can generate the same guaranteed lifetime income on your own, I have two words for you: mortality credits.
So let’s say you invest your hundred grand in something relatively stable like 10-year Treasury bonds, which recently yielded about 2.2 percent.
Of course, your $100,000 would last longer if you earn a higher return. At 4 percent a year, the $565-a-month payments would last four more years until age 87, and at a 6 percent return they would last until age 98.
And if you do decide to purchase an annuity, you’ll want to shop around (payouts can easily from insurer to insurer by 8 to 10 percent) and take other steps to assure that you can rely on those payments coming in the rest of your life, including sticking to annuities of highly-rated insurers and keeping the amount you invest with any single insurer below the coverage limit of your state’s life and health insurance guaranty association.
All else equal, annuity payments are smaller when interest rates are low as is the case today (which no doubt accounts for the fact that immediate annuity sales have been declining lately, falling almost 20 percent the first half of this year). But if you buy in gradually, you’ll reduce the chance of investing all your money when rates are at a trough.