Payout factor is a number used in annuity income calculations and certain life insurance settlement options to determine how much periodic income a contract owner or beneficiary will receive per unit of account value or benefit. It incorporates assumptions about interest rates, mortality, and payment duration, such as life-only, joint life, or period-certain structures. In immediate annuities and annuitization options, the payout factor multiplied by the account value yields the periodic payment amount. Higher payout factors result in higher income but usually reflect shorter expected payment durations or higher assumed interest. Understanding payout factors is crucial when comparing income options across carriers and structures.

In everyday practice, advisors analyze payout factors when designing guaranteed income strategies using single premium immediate annuities or annuitization elections from deferred annuities and some life insurance contracts. They compare payout factors for different ages, genders where permitted, and options such as life-only versus joint-and-survivor with various period-certain guarantees. Producers explain that while higher payout factors can be attractive, they may involve trade offs like reduced survivor benefits or lack of refund provisions. Advisors also compare insurer payout factors with those derived from withdrawal-based income riders to determine which guarantees offer better value given the client's health, longevity expectations, and risk tolerance. During reviews, they may revisit available payout factors at retirement versus earlier projections, adjusting strategies as interest rate environments change. By understanding payout factors thoroughly, advisors help clients choose income options that align with cash flow needs, survivor protection goals, and overall retirement plans.