If you have $1.5 million saved, should you buy an annuity? The honest answer is that it depends on what you need your money to accomplish.
I sell annuities, and that is how I make money. But there are times when I tell someone not to buy one because an annuity should solve a real retirement income problem, not simply be sold because someone has enough money to purchase it.
So if your priority is maximum contractual lifetime income, an annuity may deserve a closer look. If you are comfortable relying on the stock market, bonds, dividends, and other investments for income, you may decide you do not need one at all.
In this article, I’ll walk through what $1.5 million could potentially produce, why delaying income may change the payout, and why I generally would not recommend putting your entire portfolio into an annuity.
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Should You Buy an Annuity With $1.5 Million?
An annuity may make sense if you want to transfer some retirement income risk to an insurance company. You are essentially saying, “I want a contractual amount of income, I do not want to outlive it, and I want more certainty in retirement.”
That is similar to the role Social Security or a pension plays. You are purchasing another dependable income stream that can arrive every month regardless of what happens in the stock market.
However, owning $1.5 million does not mean you need to place all $1.5 million into one contract. You might use $500,000, $1 million, or another amount based on the income gap you actually need to fill.
💡 Pro Tip: Use the least amount of your assets necessary to create the contractual income you need. That allows the rest of your money to remain available for liquidity, growth, emergencies, and legacy goals.
👉 Want to compare potential annuity payouts using your age, state, and income needs? Use my annuity calculators, or schedule a call with me for help reviewing the options.
How Much Immediate Income Could $1.5 Million Produce?
Let’s start with a hypothetical example from the video shown above: a 59-year-old living in Delaware who wants income immediately.
In the illustration shown in the video above, the highest-paying option produced approximately $106,000 per year for one life. The North American contract shown offered the highest payout among several companies reviewed, including Corebridge, Ameritas, Midland, Talcott, Nassau, Athene, Prudential, and Allianz.
For a married couple of the same age choosing joint lifetime income, the illustrated payout dropped to approximately $99,000 per year. That reduction makes sense because the insurance company is contractually responsible for continuing income across two lives rather than one.
The tradeoff is important. This type of annuity is designed to maximize lifetime pension-like income, not maximize inheritance.
The account value may eventually decline to zero, potentially within 15 to 20 years in the illustration, but the contractual income would continue for life. With joint income, it would continue for as long as either covered spouse is alive, according to the contract’s terms.
If leaving a large legacy or maintaining maximum account growth is your main goal, a different contract or strategy may be more appropriate. Adding stronger growth or legacy features usually means accepting less guaranteed income.
What Happens If You Wait Until Age 65?
Now imagine the same 59-year-old couple has $1.5 million but does not plan to retire until age 65. They want to fund the annuity now, allow the income benefit to grow, and begin withdrawals later.
In the joint-life illustration shown in the video above, waiting until age 65 produced approximately $171,000 per year in lifetime income. The $1.5 million income benefit base grew to about $2.38 million through an 8% compound roll-up, and a 7.2% payout factor was then applied to that benefit base.
The start date remained flexible in the example:
- Starting income at age 63 produced approximately $142,000 per year.
- Starting income at age 64 produced approximately $156,000 per year.
- Starting income at age 65 produced approximately $171,000 per year.
This flexibility matters because retirement plans can change. You may initially expect to work until 65 but later decide to retire a year or two earlier.
For example, if you received $171,000 from the annuity at 65 and another $40,000 from Social Security, you would have roughly $210,000 of annual income before considering any withdrawals from other investments.
These figures come from a specific hypothetical illustration based on a particular age, state, contract, and point in time. Your available payout will depend on your personal details and the products and rates available when you apply.
👉 If you want to see estimates based on your circumstances, use our income rider calculator or schedule a call with me.
The Income Benefit Base Is Not Your Account Value
One of the most important concepts to understand is that an 8% roll-up does not mean your actual cash value is earning a guaranteed 8% return.
The annuity has two different values serving two different purposes:
- The account value is the contract’s cash value. It may receive index-linked interest, remain flat in a year with no credited interest, or decline because of rider charges and withdrawals.
- The income benefit base is an accounting value used to calculate future lifetime income. It is generally not a lump sum you can withdraw.
In the illustration shown in the video above, the income benefit base (not the cash value) grew from $1.5 million to approximately $2.38 million by age 65. Multiplying that amount by the 7.2% payout factor produced the estimated $171,000 annual income.
The contract also included rider charges associated with the guaranteed income feature. Those charges came from the account value, not directly from the promised lifetime income payment.
The account value may also receive interest based on an index such as the S&P 500. The insurance company can use options to provide index-linked growth without directly placing your money in the market.
If no interest is credited, you may earn nothing for that period, but the contract protects you from direct market losses, subject to its terms.
This distinction is essential: you buy this type of annuity primarily for the contractual lifetime income, not because the benefit base represents cash you can withdraw.
Why I Would Not Put the Entire $1.5 Million Into an Annuity
If $1.5 million represents all your liquid assets (including cash, brokerage accounts, and other investments), I would not recommend placing the full amount into an annuity.
You need money outside the contract for emergencies, larger purchases, unexpected expenses, and opportunities. Real estate is not included when I talk about liquid assets because it usually cannot be accessed as quickly as cash or marketable investments.
For a total liquid portfolio of $1.5 million, I generally would not recommend putting more than approximately $1.2 million into the annuity described in the example. If a smaller amount can create the income you need, I would prefer using less.
Suppose you used $1 million instead and kept $500,000 available for cash and market investments. In the same age-65 joint-income illustration shown in the video above, the $1 million income benefit base grew to approximately $1.586 million, and the 7.2% payout factor produced about $114,000 per year.
That could still create substantial lifetime income while preserving one-third of the original portfolio outside the annuity.
💡 Pro Tip: Begin with the income you need, then work backward to determine the smallest premium that can provide it. Do not begin by asking how much of your portfolio an advisor can place into a contract.
Give Each Part of Your Portfolio One Job
Trying to find one product that delivers maximum income, maximum growth, complete liquidity, strong legacy value, and no risk usually leads to compromises that are easy to overlook.
I prefer compartmentalizing retirement assets so each part has a clear job:
- Annuity: Create contractual lifetime income.
- Stock market investments: Pursue long-term growth.
- Cash and liquid accounts: Cover emergencies and near-term spending.
- Legacy assets: Preserve wealth intended for beneficiaries.
If you use an income annuity for maximum lifetime income, the account balance and death benefit may decline over time. That is not necessarily a flaw; it reflects what the contract was designed to do.
Meanwhile, the money outside the annuity can remain invested for growth, held in cash, or positioned for heirs. Separating these goals may work better than forcing a single contract to do everything.
Having predictable income can also make it emotionally easier to leave long-term investments alone during a market decline. If your essential lifestyle is supported by Social Security, a pension, and annuity income, you may be less likely to sell growth assets at the wrong time.
7. Who May (or May Not) Benefit From an Annuity?
An annuity may be worth considering if you:
- Want income you cannot outlive.
- Prefer more certainty than market-based withdrawals can provide.
- Want to supplement Social Security or an employer pension.
- Have enough liquid assets outside the annuity.
- Understand that maximum income may require sacrificing liquidity, growth, or legacy value.
An annuity may not be appropriate if you:
- Are comfortable managing market, dividend, bond, and interest-rate risks.
- Need unrestricted access to most or all of your money.
- Prioritize leaving the largest possible account balance to your heirs.
- Do not have adequate emergency savings or liquid investments outside the contract.
- Are being asked to commit more money than necessary to meet your income goal.
The right question is not simply, “Do I have enough money to buy an annuity?” It is, “Would an annuity solve a retirement income problem better than my other options?”
Conclusion
With $1.5 million saved, an annuity can potentially create a large stream of contractual lifetime income. The examples reviewed ranged from approximately $99,000 to $106,000 per year for immediate joint or single income at age 59, while delaying joint income to age 65 increased the payout to roughly $171,000 per year.
But I would not automatically place the entire $1.5 million into an annuity, especially if that is your full liquid portfolio.
I would first identify the income you need, use the smallest practical portion of your assets to create it, and preserve enough money for liquidity, growth, and legacy goals.
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