If you have $750,000 saved for retirement, how much guaranteed income could that money create?
The answer depends on several factors, including your age, marital status, when you want the income to begin, and the annuity contract you select. In one recent joint-income illustration, $750,000 generated approximately $65,610 per year in guaranteed lifetime income after a two-year waiting period.
Let’s look at how that income was calculated, what the annuity provides, and why you may not want to place your entire retirement portfolio into one contract.
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How Much Income Can $750,000 Generate?
For this example, I looked at a married couple living in Iowa. One spouse was 66, and they planned to begin taking income in two years when they retired and claimed Social Security.
After comparing several annuity carriers, the highest illustrated contractual income was approximately:
- $65,610 per year
- $5,467 per month
- Income guaranteed for both spouses’ lifetimes
The top illustrated option came from Corbridge Financial, an A-rated insurance company at the time of the comparison. Other available carriers included Global Atlantic, North American, Nationwide, Nassau, F&G, MassMutual, Prudential, Allianz, and Midland.
These numbers are only an example. Your actual payout may be different depending on your age, state, income start date, and whether you choose single or joint lifetime income.
👉 Want to see what $750,000 could generate based on your information? Use my annuity calculators.
How Does the Annuity Create $65,610 Per Year?
The annuity in this example offered a 10% annual roll-up on its income benefit base during the two-year deferral period.
Here is how that worked:
- The original premium was $750,000.
- The income benefit base increased to $825,000 after the first year.
- It increased again to $900,000 after the second year.
- The $900,000 benefit base was multiplied by a 7.29% lifetime withdrawal rate.
- That produced approximately $65,610 in annual joint lifetime income.
It is important to understand that the $900,000 benefit base is not the same as the cash value of the annuity. It is an accounting value used by the insurance company to calculate your guaranteed income.
💡 Pro Tip: When comparing annuities, don’t look only at the roll-up rate. The withdrawal percentage and final guaranteed payout are what ultimately determine how much income you receive.
What Happens If the Account Value Runs Out?
The account value and the guaranteed income benefit are two different things.
In this illustration, if there were no index growth, the remaining account value and death benefit were projected to last until approximately age 77. With moderate growth, they could potentially last until around age 80.
However, the lifetime income would continue even if the account value reached zero. That contractual guarantee is the main reason to purchase this type of annuity.
By age 95, the contract was projected to have paid approximately $1.8 million in total lifetime income. If either spouse lived longer, the contract would continue paying more.
If both spouses died while money remained in the account, the remaining death benefit would generally pass to their named beneficiaries according to the contract’s terms.
Why Choose an Income Rider With a Fee?
The annuity illustrated in this example included an income rider charge. That fee helped provide the 10% benefit-base roll-up and the higher lifetime withdrawal percentage.
You can purchase some annuities without an income-rider fee. However, based on the contracts compared in this example, doing so could reduce the available income by roughly one-third or even 40%.
The better option depends on your goal.
If your priority is preserving more account value or leaving a larger legacy, a lower-cost annuity without an income rider may be worth considering. If your priority is creating the highest contractual lifetime income, paying for an income rider may make more sense.
Many of the people I work with want to use only a portion of their assets to create dependable income. They may leave their home, stocks, or other investments to their children while using the annuity to help support themselves throughout retirement.
👉 Want help comparing annuities with and without rider charges? Schedule a call with me to review the available options.
Is the Enhanced Withdrawal Benefit Long-Term Care Insurance?
Some annuities offer an enhanced lifetime withdrawal benefit at no additional charge. If you become unable to perform two of the six activities of daily living, the contract may temporarily increase or double your payments.
However, this enhanced payment is usually limited. The insurance company may accelerate payments from your remaining account value, and once that value is depleted, the income returns to its normal guaranteed amount.
For this example, that means the enhanced payment could eventually return to approximately $65,610 per year.
This feature can provide additional money during a period when you need it most, but it should not automatically be treated as a replacement for long-term care insurance. If you specifically want long-term care protection, consider comparing dedicated long-term care policies.
Is This Annuity Designed for Income or Growth?
This particular annuity is primarily an income product (not a high-growth investment).
Although the account may receive index-linked interest, you should not expect it to perform like an aggressive stock portfolio.
The main purpose is to create something similar to a personal pension: a predictable income stream backed by the claims-paying ability of the issuing insurance company.
Having that contractual income in place can also make it easier to invest other money in the stock market. You may feel more comfortable accepting investment risk when your essential retirement income is already covered.
If your primary goal is maximizing growth rather than creating guaranteed income, keeping more of your money in higher-growth investments may be more appropriate.
Should You Put All $750,000 Into an Annuity?
You generally should not place all your liquid retirement savings into an annuity.
If you want to deposit $750,000 into an annuity, you may need approximately $1 million in total liquid assets. That would leave about $250,000 available in cash, brokerage accounts, a Roth IRA, a traditional IRA, or other liquid accounts.
Real estate and other hard assets may not satisfy an insurance company’s liquidity requirements, even if you own them outright.
As a general guideline, you should avoid placing more than 75% of your total liquid assets into annuities. Using 50%, 20%, or another smaller percentage may be even better if that is all you need to create the desired income.
Maintaining liquidity is important because annuities commonly have surrender charges. Although many contracts permit annual penalty-free withdrawals (often up to 10%) taking more than the permitted amount or canceling the contract early could result in charges.
An insurance carrier may also reject an application if the purchase would leave you without adequate liquid assets.
💡 Pro Tip: Use only the amount necessary to create your desired income. Keep enough money outside the annuity for emergencies, large purchases, and unexpected expenses.
Conclusion
A $750,000 annuity producing approximately $65,610 per year (or about $5,467 per month) could provide meaningful joint lifetime income. Combined with Social Security and other assets, it may help create a more predictable retirement paycheck.
However, the highest payout is not automatically the best contract. You should compare the income, rider charges, withdrawal provisions, remaining account value, death benefit, surrender schedule, and the financial strength of the insurer.
I show the available options so you can compare them and make an informed decision based on your actual goal. If you already own an annuity that is several years old, it may also be possible to compare it with newer contracts, although any replacement must provide a clear financial benefit and meet the applicable carrier requirements.
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