If you feel wealthy but you do not feel secure about retirement, you are not alone. I talk with people who have $500,000, $1 million, or even $5 million saved, and many share the same concern: How do I turn this money into income I can depend on?
The difference between wealth and retirement security becomes clearer when your paycheck stops. Having a large portfolio is valuable, but knowing how that portfolio will support your lifestyle is a different matter.
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 Can You Be Wealthy and Still Worry About Retirement?
While you are working, a market downturn may feel easier to handle because your paycheck is still coming in. Once you retire, the responsibility for producing that income shifts to your savings and other retirement income sources.
You might look at your account and think, “I have $2 million. Why am I still worried about money?” Often, the concern is not the amount you have accumulated, but the uncertainty about how long it will last.
Even with a diversified portfolio, a significant market decline can change how comfortable you feel taking withdrawals. You may have planned to spend a certain amount, only to find yourself questioning that plan when your balance drops.
That is why I separate building wealth from creating retirement security. One focuses on accumulating assets, while the other focuses on having income you can count on.
How Much Wealth Do You Need to Feel Secure?
Wealth means different things to different people. I meet retirees with around $300,000 who feel comfortable because they have Social Security, a pension, low expenses, and no debt.
Some add a small annuity to supplement their existing income. Their income covers their lifestyle, and they are not worried about having the largest possible account balance.
Other retirees have millions of dollars but want $100,000 to $200,000 or more in annual income. They may be helping their children, taking luxury vacations, or replacing their cars regularly.
There is nothing wrong with either lifestyle. The key is having realistic expectations about what your portfolio can provide.
For example, withdrawing 10% from a $5 million portfolio means taking $500,000 a year. That is a substantial demand on your savings, particularly when market returns are uneven or negative.
A 4% withdrawal from the same portfolio is $200,000. Even then, the amount you feel comfortable spending may change when the market falls.
💡 Pro Tip: Start with the income your lifestyle requires, rather than an account balance you think should make you feel wealthy. Then consider how much of that income you want guaranteed.
How Can Annuities Help Create Retirement Security?
I sell annuities, and I also love the stock market. I see a role for both because they can serve different purposes in a retirement plan.
An income annuity can help replace the paycheck you used to receive from work. Depending on the contract, it can provide income for the rest of your life, giving you a dependable foundation alongside Social Security or a pension.
That income foundation can make it easier to leave other money invested. You still experience fluctuations in those investments, but you are not relying on them for every dollar you spend.
I work with annuity options from more than 70 carriers, and I do not believe annuities are for everyone. Some people prefer to keep their money invested and accept the uncertainty that comes with taking withdrawals from a changing portfolio.
It is also important to keep growth expectations realistic. The fixed and indexed annuities I discuss are not intended to capture all the stock market’s upside, and I do not sell variable annuities.
👉 Want help comparing annuity options for retirement income? Schedule a call with me, and we can review what fits your goals.
What Could a Lifetime Income Strategy Look Like?
In the video above, I use an example of a single person who is 60 years old and allocates $1 million to an annuity. Perhaps this person has a $3 million portfolio and wants to use one-third for contractual income while keeping the rest in other assets.
One of the illustrated options provides approximately $6,200 per month if income starts immediately. That works out to about $74,400 a year, before adding any future Social Security benefits.
The illustration changes when the person waits until age 65 to begin income. In the deferred example, the illustrated annual lifetime income is approximately $116,000.
Here is how that particular calculation works:
- The initial amount allocated is $1 million.
- The income benefit base grows at an illustrated 8% compounded annually for five years.
- That produces a benefit base of approximately $1.469 million.
- Applying the illustrated 7.9% payout factor produces roughly $116,000 in annual income.
The benefit base is used to calculate income. It is not the same as a cash balance you can withdraw, and its 8% increase should not be confused with an 8% investment return on your available money.
These are examples from the video, not a current quote or a promise that everyone will receive the same payout. Your age, income start date, contract, and whether payments cover one life or two affect the available income.
The reason I show these examples is to explain how part of a portfolio can be assigned a specific job: providing lifetime income.
Why Can an Annuity Balance Decline While Income Continues?
One point that often causes confusion is seeing an annuity’s account balance decline. With the income-focused contract illustrated in the video above, withdrawals and rider charges can eventually deplete that balance.
That does not automatically mean the contractual lifetime income stops. Under the illustrated rider’s terms, qualifying lifetime payments continue even after the account value reaches zero.
You are using that money to create income, so judging the contract only by its remaining balance misses the purpose of the strategy. The income guarantee and the available account value are different parts of the contract.
People sometimes want maximum growth, maximum lifetime income, and their entire original balance preserved in the same product. Those goals involve trade-offs, which is why I prefer giving different portions of your money different jobs.
💡 Pro Tip: When comparing an income annuity, understand the lifetime payout, rider charges, and what happens if the account value reaches zero. Do not focus only on the illustrated benefit-base growth rate.
How Do You Balance Retirement Income and Future Growth?
You do not have to put your entire portfolio into an annuity to use this approach. The question is how much income you want guaranteed and how much money you want available for other purposes.
In the video, I also discuss someone with $800,000 who considers allocating $400,000 to an annuity and leaving the other half invested. That is an example of dividing responsibilities within a portfolio, not a recommendation that everyone use a 50/50 split.
One portion supports retirement income. The other can remain available for growth, savings, and flexibility, depending on your circumstances.
Consider how different a market decline might feel under those arrangements. If a $5 million stock portfolio falls 30%, its value drops to $3.5 million, and someone relying entirely on that portfolio may suddenly feel uncomfortable maintaining their withdrawals.
Having contractual income does not prevent losses in your other investments. It can, however, reduce the pressure to rely on those investments for your regular paycheck.
That is the distinction I want retirees to understand: You can continue pursuing wealth while also creating a foundation for retirement security.
How Can You Build More Confidence in Your Retirement Income?
You can reach a substantial level of wealth and still worry about losing what you worked so hard to build. A larger balance alone does not always resolve that feeling.
I think the more useful question is, “How much of my retirement income do I want guaranteed?” Your answer helps determine whether an annuity belongs in your plan and what role it should play.
I can help you independently compare annuity options across carriers, explain the differences, and answer your questions. My goal is to help you understand the choices and find an appropriate fit for the income you want.
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