Your retirement account balance may be the wrong number to focus on if it does not tell you how much income you can comfortably spend. A large portfolio can look reassuring, but it does not automatically remove the fear of running out of money.
I meet people who have spent decades building their savings, yet they hesitate to use them. They want to enjoy retirement, but they also want their money to last for the rest of their lives.
That is why I encourage people to look beyond their account balance. The question is how that money can support the retirement they actually want.
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!)
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1. How Much Money Do You Really Need to Retire?
You have probably seen headlines saying you need $1 million, $1.5 million, or some other number before you can retire. But everyone’s situation is different.
I have clients with $300,000 who are doing just fine. That does not mean $300,000 is enough for everyone. It means your retirement number depends on the income you need and how you plan to produce it.
For many people, the larger their balance gets, the more afraid they become of losing it. They worked hard to build that portfolio, and watching it decline can feel uncomfortable, even when they are using it for its intended purpose.
Most people I meet want to accomplish several things:
- Receive enough income to enjoy retirement.
- Avoid outliving their money.
- Feel comfortable spending what they have saved.
- Leave something behind for their family, if possible.
Those priorities do not always point toward the same strategy. Before deciding that you need a bigger balance, consider what you need your money to do.
2. Why I Separate Retirement Income From Portfolio Growth
I want to be upfront: I make money selling annuities. I also use them in my own plan because contractual income is important to me.
I still want to build wealth through the stock market. But emotionally, it is easier for me to stay invested through market downturns when I know I have contractual income coming in.
You do not necessarily have to choose between owning investments and having guaranteed income. You can assign different jobs to different portions of your portfolio.
For example, someone might use 30% of their assets to establish an income plan and leave the rest invested. Another person might use 40%, depending on their needs.
The point is to determine how much of your portfolio needs to produce dependable income and how much you want available for other goals.
💡 Pro Tip: Before focusing on a target account balance, ask yourself how much reliable income would help you feel comfortable spending in retirement.
👉 Want to compare annuity options for a portion of your portfolio? Visit johnstevenson.com to use my calculators or schedule a call with me.
3. What Could a Portion of Your Portfolio Provide in Lifetime Income?
In the video above, I walk through an illustration involving someone with a $1 million portfolio who allocates $400,000 to an annuity. The example uses a married couple, a five-year waiting period, and income beginning at age 65.
The illustrated joint lifetime payout is approximately $43,000 per year. That leaves $600,000 of the original portfolio outside the annuity.
These figures belong to that specific illustration. Your results will depend on your information, the contract, and the options you select.
The example includes an indexed annuity with a lifetime income rider, which has a charge. The illustrated income benefit base grows at a guaranteed 8% rate during the waiting period, reaching approximately $587,000 after five years.
A 7.4% payout factor applied to that benefit base produces the illustrated annual income.
The income benefit base is a value used to calculate payments. It is not the same as your cash account value or a balance you can withdraw as a lump sum. The 8% figure in this example should not be confused with an 8% investment return on accessible savings.
Now consider the alternative I discuss in the video. Suppose you leave the $400,000 invested and it grows to approximately $600,000.
Would you feel comfortable withdrawing $43,000 each year from that portfolio for the rest of your life?
For many people I speak with, the answer is no. That is why they consider an income annuity: they want a contractual payment instead of relying entirely on withdrawals from an investment account.
What happens if the annuity’s account value reaches zero?
In the illustration, the account value eventually reaches zero, but the lifetime income continues under the rider’s terms. Preserving that account value is not the primary purpose of this particular strategy.
You are using that portion of your money to create pension-like income. The approximately $1.3 million discussed in the video above represents cumulative payments over decades, not a lump-sum account balance.
That distinction also matters when you think about legacy goals. Money dedicated to lifetime income serves a different purpose from money you hope to leave behind.
4. How Could a Market Downturn Change Your Retirement?
Your balance also does not tell the whole story about how market timing could affect your plans.
In the video, I share that my wife’s uncle planned to retire in 2008. The market downturn disrupted those plans, and his retirement was delayed for 10 years.
That experience is one reason I take the timing of market losses seriously. A major decline near retirement can change when you retire and how comfortable you feel taking withdrawals.
Ask yourself:
- If my portfolio dropped 30%, would I still be able to retire?
- Would I need to reduce my spending?
- Would I feel comfortable continuing to withdraw money?
- How much of my income do I want protected by a contractual guarantee?
People answer those questions differently. Some are comfortable relying more heavily on investments, while others want a dependable income foundation.
For me, having contractual income makes it easier to accept the ups and downs of the money I keep invested. You have to decide what level of uncertainty you are willing to live with.
5. Could Your Income Plan Change Your Retirement Number?
You might believe you need $1.5 million before you can retire. But after reviewing your income needs, you might discover that a smaller portfolio could support your plans.
In the example from the video above, the question is whether the income generated by allocating $400,000 meets the person’s needs while leaving the rest of the portfolio available for other purposes. The example does not establish a universal retirement target.
That is why I would rather have a conversation about your income than assume you need to work another three years to reach an arbitrary balance.
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
- Find the highest paying annuities for your unique situation
- Answer any other questions you may have