If you have $500,000 saved for retirement, what should you do? My first priority would be creating reliable income without committing every dollar to an illiquid product.
An annuity could provide a contractual income stream for life, but I would only use the portion needed to establish that income. I would keep the rest available for emergencies, savings, and potential market growth.
So in this article, you’ll learn one way I might structure a $500,000 retirement portfolio.
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I Would Not Put All $500,000 Into an Annuity
Annuities can be valuable retirement income tools, especially when interest rates allow you to lock in more lifetime income than was available several years ago.
However, I generally would not place an entire $500,000 portfolio into an annuity unless I had another $100,000 to $150,000 available elsewhere.
An annuity is an illiquid asset to some extent. Many contracts allow withdrawals often up to 10% annually without surrender charges, but an income annuity is primarily designed to provide guaranteed income.
Once I establish that income, I do not want to repeatedly take additional withdrawals from the contract.
💡 Pro Tip: Use an annuity for the income it is designed to provide, while maintaining enough liquid money outside the contract for emergencies and unexpected expenses.
How I Might Divide the $500,000
Consider an example involving a 65-year-old husband and his 63-year-old spouse living in Georgia. They want income now but also want liquidity and future growth.
They could divide their $500,000 this way:
- $300,000 in an annuity for joint lifetime income
- $100,000 in savings for liquidity and emergencies
- $100,000 in the S&P 500 for potential long-term growth
This gives them three separate buckets, each with a specific purpose.
The savings provides immediate access to cash. The market account provides growth potential, while the annuity establishes a contractual income floor that does not depend on the stock market.
The market portion could potentially be used to purchase another annuity later, allowing the couple to “stack” additional lifetime income. However, market growth is never guaranteed, and the timing would depend on actual performance and their future needs.
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How Much Immediate Income Could $300,000 Produce?
In this example, a couple wanted joint lifetime income beginning immediately.
At shown in the video above, several available annuities showed annual joint payouts around:
- $21,600 from Talcott
- $21,000 from North American
- $21,000 from Corebridge
These figures were based on the couple’s ages, location, deposit amount, and the rates available at that time. Current payouts may be different because annuity rates and product availability regularly change.
Although Talcott offered slightly more income, I would have strongly considered North American because it had an A+ financial strength rating and offered an almost identical payout.
That does not mean the highest-rated carrier is automatically the right choice in every situation. I also work with certain A-, B++, and similarly rated carriers when their products and financial strength fit the client’s needs.
The goal is to compare the entire contract, not simply choose the company with the highest advertised payout.
Why I Would Choose Joint Lifetime Income
A single-life payout may provide an additional $2,000 to $3,000 per year in this example. However, the income would end when that individual dies.
If the contract’s account value had already been depleted, there might not be a remaining refund or death benefit for the surviving spouse.
That is why I generally recommend joint income for married couples. Joint lifetime income continues for as long as either spouse remains alive, regardless of what happens to the contract’s account value.
Accepting a slightly lower initial payout may be worth it to protect both spouses.
Some contracts also offer enhanced payments if the owner requires qualifying long-term care. These features can be useful, but they may only increase payments for a limited number of years.
I would not purchase an annuity solely because it includes a temporary long-term care multiplier. The primary purpose in this example is dependable lifetime income.
Delaying Income Could Increase the Payout
What if approximately $21,000 per year is not enough?
One option would be to delay retirement or postpone the beginning of the annuity income. In the example, the husband waits until age 67 and his spouse until age 65.
As shown in the video above, Nationwide offered approximately $26,000 per year in joint lifetime income from the same $300,000 premium.
If the couple also expects approximately $37,000 per year from Social Security by then, their combined contractual income could exceed $63,000 annually or more than $5,000 per month.
Delaying income is not appropriate for everyone. However, if you can continue working or cover your expenses from another source for a couple of years, waiting may produce substantially more lifetime income.
👉 If you want to see how delaying income could affect your payout, schedule a call and I can compare the available options with you.
What Happens If the Annuity’s Account Value Reaches Zero?
An income rider typically includes an annual fee, and retirement withdrawals also reduce the annuity’s account value.
If the linked market index receives no credited growth, the account value could be depleted by the couple’s late 70s. With some credited interest, the account value might last several years longer.
However, the owners are not directly invested in the S&P 500. The insurance company generally uses options tied to an index to determine interest credits, allowing the contract to offer some growth potential without exposing the account to direct market losses.
The most important point is that the lifetime income does not stop merely because the account value reaches zero. The contractual payments continue for both spouses’ lives, assuming the contract’s requirements are satisfied.
As shown in the video above, the couple could receive approximately $724,000 in total income by age 95. If they live longer, the cumulative payments would be higher.
I would not use this strategy to maximize investment growth. The stock market may produce greater long-term returns, but it does not provide the same contractual income guarantee.
The annuity’s job is to reduce market risk and create an income floor.
What If I Want to Put More Into the Annuity?
Annuity income generally increases in proportion to the amount deposited.
For example, as shown in the video above, doubling the premium in the delayed-income from $300,000 to $600,000 increased the annual joint income to approximately $51,765.
Someone with $800,000 might keep $200,000 in savings or investments and use $600,000 to establish lifetime income. A person with $1 million could also divide the money among savings, market investments, and an annuity.
If that person receives roughly $51,000 from the annuity and $40,000 from Social Security, they could have approximately $90,000 in annual contractual income.
That type of income base can provide valuable peace of mind during a market decline. The retiree can leave other investments alone rather than being forced to sell them during an unfavorable market.
What Would I Do With $500,000?
If I had $500,000 saved for retirement, I would not automatically place all of it into one product.
I would first determine how much guaranteed monthly income I need after accounting for Social Security and any pension benefits. Then I would use only the portion necessary to fill that income gap.
A possible strategy could be:
- Keep enough money in savings for emergencies.
- Maintain some money in the market for potential long-term growth.
- Use approximately $300,000 for contractual joint lifetime income.
- Compare immediate income with payouts available after a short deferral.
- Review multiple carriers based on income, ratings, fees, and contract provisions.
The right allocation depends on your age, state, marital status, existing income, risk tolerance, and liquidity needs.
Annuity rates also change frequently. That is why I believe it is important to compare current options rather than choosing a product based on an old illustration or a single company’s advertisement.
Conclusion
Having $500,000 saved for retirement gives you options, but the account balance alone does not determine whether your retirement plan will work. The more important question is how much dependable income that money can create while still leaving you with adequate savings and growth potential.
For some retirees, using $300,000 for joint lifetime income while keeping $200,000 divided between savings and the market could provide a practical balance. It creates contractual income without sacrificing all of your liquidity or future growth potential.
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