A stock market crash right after you retire can change more than your account balance. If you depend on that portfolio for retirement income, it can affect how much you feel comfortable spending and whether your retirement plans still work.
I understand wanting to capture as much growth as possible before you retire. But instead of trying to predict the next crash, I want to show you how you can protect a portion of your retirement income so your paycheck does not depend entirely on the market.
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
Why Does a Market Crash Feel Different in Retirement?
While you are working, you have a paycheck coming in. Once you retire, you may depend on your savings to replace that paycheck, which makes a market decline feel very different.
Think about someone who is two years away from retirement. Their portfolio looks great, and they want to keep growing it, but a significant loss could change their retirement date or the income they expect to receive.
The same concern applies if you have already retired. When your investments drop and you still need withdrawals to cover expenses, you may feel pressure to reduce spending or change your plans.
We have seen major downturns during the dot-com crash, the 2008 financial crisis, and the early days of COVID. Those events did not all unfold or recover the same way, which is why I do not want your retirement paycheck to rely on predicting the next one.
The question I want you to ask is this: If the market falls, how much of my retirement income will still be there?
How Can Annuities Help Protect Your Retirement Paycheck?
One reason I talk so much about annuities is that they can provide contractual guarantees. You can use a portion of your assets to create a pension-like income stream while keeping other money invested for growth.
That does not mean your remaining investment portfolio will avoid losses. It means the guaranteed income provided by your annuity can continue according to the contract, even when the market declines.
After all, why did you build your retirement savings in the first place? For most people, the goal is to replace their paycheck and have the freedom to enjoy retirement.
There are several ways to create that income:
- Single premium immediate annuities, or SPIAs: Generally used when you want income to begin soon.
- Deferred income annuities, or DIAs: Designed to begin income at a future date.
- Annuities with lifetime income riders: Provide lifetime withdrawals under the rider’s terms.
Life insurance helps protect your family financially if you die early. A lifetime income annuity addresses the opposite concern: living longer than your money would otherwise last.
If you select an appropriate joint-life option, income can continue for as long as either covered spouse is alive. These guarantees depend on the issuing insurance company’s claims-paying ability and the terms of the contract.
👉 Want to compare income options? Visit the website to use my calculators or schedule a call with me.
What Could $500,000 Provide in Guaranteed Retirement Income?
In the video above, I walk through an illustration for a North Carolina couple allocating $500,000 to an annuity and waiting five years before starting income. At the income start date, the husband is 70 and the wife is 72.
For that particular illustration, the Corebridge option showed approximately $61,763 per year in joint lifetime income. That was an example from the video, not a current quote or a payout everyone can receive.
The calculation used a 10.5% simple annual rollup to increase the income benefit base during the five-year waiting period:
- Initial premium: $500,000.
- Annual benefit-base increase: $52,500.
- Benefit base after five years: $762,500.
- Illustrated lifetime withdrawal percentage: 8.1%.
- Calculated annual income: Approximately $61,763.
Here is an important distinction: The benefit base is a number used to calculate income. It is not your available cash balance.
The 10.5% rollup is not a 10.5% investment return you can withdraw as a lump sum. Likewise, the 8.1% withdrawal percentage determines the illustrated income payment; it is not an investment yield.
Your results will depend on factors such as your age, state, income start date, joint or single coverage, and the available contract terms.
💡 Pro Tip: When comparing illustrations, ask which numbers represent accessible money and which numbers are used only to calculate income benefits.
What Happens If the Annuity’s Account Balance Runs Out?
The example in the video above uses an income rider attached to an indexed annuity. The rider provides lifetime income under its terms, while the annuity also has an account value.
Those are two different parts of the contract. Withdrawals and rider fees can reduce the account value, even when the annuity receives index interest credits.
In the illustration I reviewed, the account value eventually reached zero. Under the illustrated assumptions, that happened around age 80, and a scenario with no index growth depleted it roughly three years earlier.
Those ages are specific to the illustration. The key point is that qualifying lifetime income payments can continue under the rider even after the account value is exhausted.
The remaining death benefit is another consideration. In the example discussed, beneficiaries would receive the remaining account value, so depletion also meant that account-value death benefit was gone.
Protecting lifetime income and preserving an inheritance are different goals. We need to understand how the contract addresses each before deciding whether it fits your plan.
Some options also provide higher income initially and then reduce it later. In the video, I filtered for options without that scheduled income reduction because many people want a consistent payment.
👉 If you want help understanding the income guarantees, fees, and death benefit in an illustration, schedule a call with me.
5. Why I Give Different Parts of My Money Different Jobs
Personally, I like separating money by its purpose. I do not want every dollar to be responsible for producing income, protecting against losses, providing liquidity, and maximizing growth.
A diversified investment portfolio can help manage risk, but it does not create a contractual lifetime paycheck. If that portfolio is also funding your expenses, a downturn may still leave you uncomfortable taking withdrawals.
Here is how I think about assigning different jobs to retirement money:
- Income: Money allocated to dependable retirement cash flow, including an appropriate annuity when it fits.
- Growth: Money invested for long-term growth at a risk level you can tolerate.
- Liquidity: Accessible money for emergencies and other near-term needs.
For me, having dependable income can make it easier to tolerate fluctuations in the growth portion. I know that a market decline does not automatically mean the guaranteed portion of my paycheck will decline.
That does not mean everyone should invest aggressively. It means your investment decisions can reflect what each part of your money needs to accomplish.
💡 Pro Tip: Before comparing annuities, identify how much income you want to protect and how much money you need to keep accessible.
How I Help You Compare Annuity Options
In the video above, I explain that I work with more than 70 insurance carriers and thousands of product variations. My goal is to help you see the available choices and understand how their guarantees differ.
The product that works well for one person may not be the right choice for another. State availability, ages, income timing, fees, and survivor benefits can all affect the comparison.
I do not want you choosing a contract simply because it was the only one presented at a seminar or because you recognize the company’s name. I want you to understand the alternatives and what you receive for your money.
I also want to be clear that I help people purchase annuities, and that is how I make my living. My approach is to show you the options, explain the guarantees, and answer your questions so you can make an informed decision.
You cannot control when the stock market crashes, but you can plan how much of your retirement paycheck depends on it. Allocating a portion of your savings to guaranteed income may help you protect that paycheck while keeping other assets available for growth and liquidity.
Need help with finding the best annuity for your retirement?
Click here to schedule a call with me.
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