If you have $2 million saved for retirement, you may feel like guaranteed income is unnecessary. You have built a substantial portfolio, and you may believe you can simply invest the money and withdraw what you need.
You might be right. Not everyone with $2 million needs an annuity, but guaranteed retirement income may still be worth considering, especially if it allows you to invest the rest of your portfolio with greater confidence.
Need help choosing the best annuity for your unique situation? Have questions about getting an annuity? If so, it’s best to speak with an annuity specialist. Watch this short video to see how I can help you do this (at no cost to you!)
Tip: See how much an annuity could pay you using my annuity calculator
Do I Need Guaranteed Income With $2 Million?
Having $2 million gives you options, but it does not automatically eliminate every retirement risk. Market downturns, poor withdrawal timing, longevity, and the financial experience of your surviving spouse can all affect your plan.
In my opinion, the goal is not necessarily to place your entire portfolio into an annuity. It may be better to use the smallest portion necessary to create the contractual income you want and leave the rest available for growth, liquidity, and other goals.
Some wealthy retirees are comfortable living entirely from their investments. There is nothing wrong with that approach if they understand the risks and have enough flexibility to handle market declines.
Others want a dependable paycheck that will continue regardless of what happens in the stock market. That guaranteed income can help cover their lifestyle while allowing the rest of their investments to remain invested.
Guaranteed income may also simplify things for a spouse who does not manage the investments. If the financially experienced spouse dies first, the surviving spouse does not have to determine which investments to sell or how to recreate the income, the annuity payments can simply continue according to the contract.
💡 Pro Tip: The question is not always, “Can I afford to live without an annuity?” A better question may be, “Would guaranteed income make my retirement plan easier to manage?”
👉 Want to see whether guaranteed income makes sense for your $2 million portfolio? Schedule a call with me.
What Could a $2 Million Annuity Generate?
Let’s look at the hypothetical example from the video above.
Assume you have $2 million, live in Florida, are age 59, and have a 66-year-old spouse. In this example, the money is placed into an annuity and allowed to sit for six years before the income begins.
Based on the contract illustrated shown in the video above, the projected guaranteed income was approximately $228,000 per year. The payments would continue for life, even if the annuity’s account value eventually reached zero.
That six-year deferral period matters. If you begin the income immediately, the annual payout will generally be lower, while someone who is older may not need to wait as long to receive a higher payout.
The illustration also showed two possible account-value outcomes:
- If the indexed strategy received no credited growth, the account value was projected to reach zero around age 73.
- If the market performed well and the contract received positive index credits, the account value could last longer.
- If both spouses died before the account value was depleted, the remaining value would generally pass to the beneficiaries under the illustrated contract.
- Once the account value reached zero, the guaranteed lifetime income would continue according to the contract.
By age 95, the couple could have collected approximately $7 million in total income. If either spouse lived beyond that age, the payments would continue for as long as the contract required.
If the household also received around $50,000 per year from Social Security or another income source, total annual income could approach $280,000.
These numbers are not universal. Your actual payout will depend on your age, state, marital status, deferral period, premium, and the annuity contracts available when you apply.
Could I Put Only Part of My $2 Million Into an Annuity?
You do not have to place all $2 million into an annuity to benefit from guaranteed income.
In the second hypothetical example shown in the video above, only $900,000 of the $2 million portfolio was allocated to an annuity. Based on the contract illustrated, that amount could provide approximately $100,000 per year in guaranteed lifetime income after the assumed deferral period.
That would leave $1.1 million outside the annuity. For example, asset buckets could look like this:
- $300,000 held in cash as an emergency or spending reserve
- $800,000 invested for long-term growth
- $900,000 used to create guaranteed lifetime income
If the $800,000 investment earned an assumed average return of 10% per year and no withdrawals were taken, it could grow to approximately $2 million after 10 years. That return is only a hypothetical assumption and is not guaranteed, but it demonstrates the basic strategy.
You would have guaranteed income supporting your lifestyle while the remaining investments had time to grow. You could then decide later whether to continue investing that money or use another portion to purchase additional income.
Some people build guaranteed income in stages. Instead of buying one large annuity, they purchase additional contracts as they age and as their income needs change.
I have worked with clients who own several annuity contracts and stack their income over time. The purpose is to create additional guaranteed paychecks when they need them without committing their entire portfolio at once.
👉 Want help comparing full and partial annuity strategies? Click here to schedule a call.
How Can I Separate Income, Growth, and Savings?
One reason I like this approach is that it gives every part of the portfolio a specific job.
Your retirement assets could be divided into three general categories:
- Guaranteed income: Money designed to create contractual payments you cannot outlive.
- Growth investments: Money that remains invested in stocks, mutual funds, or other assets to pursue long-term growth and help address inflation.
- Cash reserves: Money available for emergencies, major purchases, and short-term spending.
This structure can make market declines easier to handle emotionally and financially. If your essential expenses and some of your lifestyle are already covered, you may not feel pressured to sell investments after the market falls.
Instead of liquidating positions at a loss, you may be able to let those investments recover while your guaranteed income continues. You can acknowledge that the market is down and still move forward with your retirement plans.
The amount used for guarantees does not need to be massive. It only needs to be large enough to cover the needs (and possibly some of the wants) that matter most to you.
💡 Pro Tip: Before shopping for an annuity, determine how much dependable annual income you actually need. Then compare contracts based on that goal rather than automatically allocating your entire portfolio.
What Guaranteed Income Is (and Is Not)
An income annuity is not designed to replace every investment in your portfolio. It also should not be judged by the same standards as a stock portfolio.
The contract shown in the video above credited only a portion of the S&P 500’s performance because the insurance company was using options to support the indexed strategy. You would not receive the full return of the stock market.
This is primarily an income product, not a maximum-growth product. You are accepting limited growth potential in exchange for contractual lifetime income.
That creates a clear tradeoff:
- Stocks and mutual funds may offer greater long-term growth.
- Cash provides liquidity and stability.
- An income annuity provides contractual lifetime payments.
- A balanced retirement strategy may use all three for different purposes.
I like growth investments, and I want to participate in the market. At the same time, I also see a place for guarantees.
You do not necessarily have to choose between growth and guaranteed income. Depending on your situation, you may be able to use both.
Conclusion
If you have $2 million saved, you may not need guaranteed income. Your portfolio, other income sources, spending needs, risk tolerance, and family circumstances may allow you to manage retirement entirely through investments.
However, an annuity could still provide peace of mind, reduce your dependence on market withdrawals, and make retirement income easier for a surviving spouse to manage.
The right strategy may involve using only enough of your portfolio to cover the income you want while keeping the rest available for growth and emergencies.