If you have $5 million saved for retirement, you are in a strong financial position. But does guaranteed income still matter when your portfolio can already generate substantial income from Treasury securities, bonds, municipal bonds, dividend-paying stocks, or a diversified investment strategy?
Maybe it does, and maybe it doesn’t. I work with many people who have this type of asset base, and the right answer depends on what you want your money to accomplish, how much certainty you value, and whether you want to keep taking market risk with every dollar you have saved.
Before we get into the numbers, I want to be transparent: I sell annuities, and that is how I make my money. My goal is not to pressure you into buying one. I want to show you what is possible so you can decide whether guaranteed retirement income fits your plan.
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
Having $5 Million Does Not Automatically Answer the Income Question
Reaching $5 million is a major accomplishment. Even if someone has $1 million, $2 million, or $3 million, they may still be in a good position, but $5 million can potentially generate a significant amount of retirement income.
For example, Treasury yields were roughly 3% to 4% when the video for this article was recorded. On $5 million, that could create meaningful income, although rates change and Treasury income is not the same as lifetime income guaranteed by an insurance contract.
You could also consider:
- Bonds
- Municipal bonds
- Dividend-paying stocks
- A traditional stock-and-bond portfolio
- Annuities designed for lifetime income
Each option works differently and comes with its own risks. Stock investments can carry market risk, while bonds can carry interest-rate and credit risk.
An annuity is an insurance contract generally purchased for contractual guarantees and pension-like income. Those guarantees are backed by the claims-paying ability of the issuing insurance company.
The real question is not simply, “Do I have enough money?” It is, “How much of my future income do I want to depend on markets, interest rates, and withdrawal decisions?”
💡 Pro Tip: You do not have to choose between investing everything and annuitizing everything. Many people use only a portion of their portfolio for guaranteed income.
Guaranteed Income Is About Certainty, Not Maximum Growth
If your main goal is maximizing long-term growth, an income annuity may not be the best place for all $5 million. You may be able to earn more by leaving money invested in the stock market, although the outcome is not guaranteed.
That is not why people buy income annuities. They buy them to create a pension-like stream of income that can continue for life.
This can be attractive to people with substantial wealth because it separates income planning from growth investing. Once their income is covered, they may feel more comfortable investing the remaining money for growth because they are not relying on that portion to pay the bills.
For example, someone with $10 million could use $5 million to create lifetime income and leave the other $5 million invested elsewhere. Someone with $5 million might use half or an even smaller amount to establish an income floor while keeping the rest liquid and invested.
👉 Want to compare guaranteed income options without committing your entire portfolio? Use my free calculators or schedule a call with me.
What Could $5 Million Produce in Guaranteed Lifetime Income?
Let’s look at the specific illustration from the video above. This example involved a couple in South Carolina: one spouse was 62, the other was 63, and they planned to begin joint income in eight years at ages 70 and 71.
They did not need the income immediately. Their goal was to use the deferral period to create a much larger income stream later.
In that illustration, the top result was from North American, which is an A+ rated company with a 140-year history. The illustrated joint lifetime income was approximately $712,000 per year after the eight-year deferral.
The illustration showed:
- A benefit base growing at 8% compounded annually
- A benefit base reaching approximately $9.2 million
- A 7.7% payout factor applied to that benefit base
- Approximately $712,000 in annual joint lifetime income
- Roughly $18 million in cumulative income by age 95
- Continued income if either spouse lived beyond age 95
The benefit base is used to calculate income; it is not the same as cash value available for withdrawal. In the example, the projected account value grew to only about $5.7 million, reinforcing that this was an income strategy rather than a maximum-growth strategy.
The contract also included substantial rider charges. Those charges affected the contract value, but they were not subtracted from the quoted annual income payment.
These figures are examples, not a current quote or a promise that every buyer will receive the same result. Actual payouts depend on age, state, sex where permitted, single or joint coverage, premium, deferral period, carrier, product, and the rates available when the contract is issued.
How the Income Start Date Changes the Payout
The longer you defer income, the more time the contract has to build the benefit used to calculate future payments. That is why the eight-year deferral produced considerably more income than beginning earlier.
Using the same general couple in the example above, the illustrations showed:
- Income beginning after eight years: Approximately $712,000 per year jointly
- Income beginning after three years: Approximately $462,000 per year jointly
- Income beginning immediately: Approximately $348,000 per year jointly
The top carrier also changed at different deferral periods. One company may be strongest for income beginning in eight years, while another may be more competitive when income starts now or in three years.
This is why I do not believe you should select an annuity based only on a company name or a single advertised feature. You have to compare the available contracts using your actual income start date and specific goals.
Single-life income can also be higher than joint-life income because the insurance company is covering one life instead of two. In the immediate-income illustration, switching from joint to single increased the annual payout by roughly $30,000.
Also, if the owner died early, any remaining account value would pass to the beneficiaries rather than automatically going to the insurance company. Death-benefit provisions vary by contract, so they should always be reviewed before purchasing.
👉 Want to see how changing the deferral period affects your income? Use my calculators to compare immediate, and longer-term income options.
You May Only Need to Use Part of the $5 Million
Having $5 million does not mean you should place all $5 million into an annuity. In many cases, using a portion can create the desired income floor while preserving liquidity and growth potential elsewhere.
In the video above, I illustrated $2.5 million. In that single-life version of the illustration, the annual guaranteed income was approximately $189,000.
You could then layer Social Security on top of that income. Meanwhile, the other $2.5 million could remain outside the annuity for example, with $500,000 held in cash and $2 million invested for growth.
You can pursue income and growth at the same time. One portion can create dependable cash flow, while another remains available for liquidity, future growth, unexpected expenses, or a legacy.
Growth Matters, but So Does Using the Wealth You Built
Many investors spend decades focused on growth. Growth is important, but retirement is also the stage when your savings may need to become usable income.
If your only objective is leaving the largest possible legacy, you might choose to keep more money invested for your children or other beneficiaries. There is nothing wrong with that, but it is worth asking how much of your working life the accumulated money represents and how much you want to enjoy during retirement.
Some advisors criticize annuities because they may offer limited cash-value growth and can pay commissions. Those concerns should be evaluated honestly.
For commissions, the insurance company pays it but commissions and product economics can vary by carrier and contract.
I may earn more from some contracts than others. My approach is to show you all of the available options, explain the income and tradeoffs, and let you research the companies and products before deciding whether to move forward.
💡 Pro Tip: Compare contracts based on the net income they provide, the strength of the insurer, liquidity rules, surrender period, rider cost, death benefit, and how well the product fits your plan not simply the highest headline payout.
So, Does Guaranteed Income Still Matter With $5 Million?
Guaranteed income can still matter, but it is not automatically necessary. If you are comfortable keeping your portfolio invested, using a stock-and-bond allocation, and taking withdrawals under a strategy such as the 4% rule, that may be appropriate for you.
An annuity is simply another option. It can potentially maximize lifetime income from a selected portion of your portfolio, help you enjoy more of the wealth you created, and allow the rest of your money to remain invested for growth.
The right decision depends on what gives you confidence. Some people want every dollar working for maximum growth. Others value knowing that a specific amount will arrive every month or year regardless of what the market is doing.
My suggestion is to start with the income gap you actually want to cover. Then compare how much capital would be required to fill that gap under several strategies rather than deciding in advance that you either need an annuity or should avoid one.
Conclusion
With $5 million saved, you have choices. You may be able to generate the income you need from traditional investments, or you may decide that using part of your portfolio to create contractual lifetime income provides a level of certainty that is worth the tradeoff in growth and liquidity.
I am not here to hard-sell you. I want to show you what is available, explain how the numbers work, and help you compare options so you can decide what fits your retirement goals.
Need help with finding the best annuity for your retirement?
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On the call, I can help you:
- Determine what type of annuity is best for you
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- Answer any other questions you may have