Dividends vs. an Annuity: Which Turns $675,000 Into More Monthly Income for Life?

A $675,000 nest egg sits right in the sweet spot where the annuity-versus-dividends debate stops being theoretical. It is enough capital to generate meaningful lifetime income, but not so much that the choice is trivial. The question every reader in this position asks is the same: Which structure produces more monthly income, and what am I giving up to get it?

With the 10-year Treasury yield near 5% and the Fed funds rate holding at 4% since December, annuity payouts are the most competitive they have been in years. That is exactly why the comparison matters now.

What an Immediate Annuity Pays on $675,000

A single-premium immediate annuity for a 65-year-old typically pays out in the 6.5% to 7.5% range, translating to roughly $43,000 to $50,000 per year, or about $3,600 to $4,200 per month. The exact quote depends on age, gender, state, and whether you elect a survivor benefit or period-certain rider. Clark Howard put it plainly on his podcast: “There’s a product called an immediate annuity, which you can take the lump sum from the pension plan and you can throw it into an immediate annuity. And they’ll be able to tell you, based on your state and your age, what they’ll be able to generate for you per month for the rest of your life.”

The payment never rises or falls. When you die, most contracts stop paying, leaving nothing for heirs unless you paid extra for a rider.

The Three Dividend Yield Tiers

Here is what the same $675,000 generates across three dividend strategies.

Conservative Tier (3% to 4% Yield). This is the dividend-growth lane: broad staples, healthcare, and regulated utilities. $675,000 at a 3.5% yield equals $23,625 per year, or roughly $1,970 per month. Procter & Gamble (NYSE:PG | PG Price Prediction) sits here, paying $1.0885 quarterly after its 2026 raise from $1.0568. Johnson & Johnson (NYSE:JNJ) fits the same profile at $1.34 quarterly, marking 64 consecutive years of increases. NorthWestern Energy Group (NASDAQ:NWE) yields 3.8% as a regulated utility. Lowest income, highest quality, most growth.

Moderate Tier (5% to 7% Yield). Telecoms, REITs, preferred shares, and covered-call ETFs live here. $675,000 at a 6% yield equals $40,500 annually, or $3,375 per month. Verizon (NYSE:VZ) anchors this tier at a 6.1% yield and $2.83 annualized. Covered-call funds like JPMorgan’s Nasdaq Equity Premium Income ETF distribute at higher levels. Growth slows here, and covered-call strategies cap upside during rallies.

Aggressive Tier (8% to 12% Yield). Business development companies, mortgage REITs, and leveraged option-income funds. $675,000 at a 10% yield equals $67,500 per year, or $5,625 per month. That comfortably beats any annuity quote. The catch: principal erosion is common, distributions get cut in downturns, and NAV often drifts lower over time.

Dividend Growth Overtakes the Annuity by Year 15

The annuity wins on year-one income against the conservative and moderate tiers. It loses on year-fifteen income against dividend growth, and it is not close.

PG raised its quarterly payout from $0.285 in 1999 to $1.0885 today. JNJ went from roughly $0.25 quarterly in 1999 to $1.34 in 2026. Verizon has raised its payout every year without a single cut across 27 years of records, most recently to $0.7075. Even a modest 5% annual dividend growth rate doubles income in about 14 years. The annuity check will be the same amount 14 years from now that it was on day one.

With core PCE inflation still climbing and sitting at the 90.9th percentile of its 12-month range, that fixed-payment risk is not academic. Purchasing power on $3,900 today is not $3,900 in 2036.

Price appreciation compounds the gap. JNJ is up 169% over the past decade, PG 122%, NWE 75%. Annuity principal is gone the moment you sign.

Three Actions Before You Decide

1. Get three real annuity quotes. Use immediateannuities.com or a fee-only advisor to price a life-only, life-with-10-year-certain, and joint-and-survivor contract on your $675,000. The spread between these options often surprises people and sets your true benchmark.
2. Model a 15-year dividend growth scenario. Take a 3.5% starting yield growing 6% annually and compare cumulative payments against a level $45,000 annuity. The crossover point usually lands between year 9 and year 11.
3. Decide what happens to the money when you die. An annuity generally pays nothing to heirs. A dividend portfolio passes to them at a stepped-up cost basis. If legacy matters, that alone can settle the debate.

The right answer is rarely all-or-nothing. Annuitizing a portion for baseline income and keeping the rest in dividend growers captures the guarantee where you need it and the compounding where you can afford volatility.

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