How much guaranteed income do you actually need in retirement? I would start with your expenses, where you live, and what you want retirement to look like, because one average cannot answer that question for everyone.
Some retirees are comfortable with a modest income and a paid-off home. Others want more room for travel, healthcare, and helping their grandchildren, so let’s walk through some income ranges and how an annuity could help.
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How Much Annual Retirement Income Is Enough?
In the above video, I describe three broad lifestyle ranges. Think of these as planning examples, not official national averages or a requirement that every dollar come from guaranteed income.
- Basic needs: $36,000 to $48,000 per year, or $3,000 to $4,000 per month.
- Comfortable lifestyle: $60,000 to $100,000 per year, or roughly $5,000 to $8,333 per month.
- More affluent lifestyle: $100,000 to $180,000 per year or more, or roughly $8,333 to $15,000 per month or more.
Your location makes a big difference. The same income can support very different lifestyles in San Francisco and Nebraska, or in Lake Tahoe and Las Vegas.
Your debt, housing expenses, and spending habits matter just as much. Someone with a paid-off home and modest expenses may need less, while someone with substantial housing costs, community fees, and frequent travel may need considerably more.
The number I want you to focus on is the income that supports your own retirement. Once you know that, you can decide how much you want covered by dependable income sources.
Is Replacing 70% to 80% of Your Income Enough?
You have probably heard that you need about 70% to 80% of your working income in retirement. I think that can be a reasonable starting point, especially because you will no longer be setting aside part of every paycheck for retirement.
But I would not stop there. If your plans include expenses you did not have while working, that percentage may be too low.
Maybe you want to travel more, indulge your grandchildren, or have extra money available for healthcare. Those priorities belong in your budget before you decide how much income is enough.
💡 Pro Tip: Start with what you expect to spend, rather than automatically reducing your current income by 20% or 30%. Include both everyday expenses and the experiences you want retirement to make possible.
Then look at what Social Security and any pension will cover. The remaining gap is where I would explore whether an annuity makes sense.
How Can an Annuity Supplement Social Security?
In my video, I walk through an example involving a Florida couple, ages 62 and 60, considering putting $300,000 into an annuity. Their goal is to start receiving income around their planned retirement.
They estimate combined Social Security income of $2,500 per month after Medicare premiums, or $30,000 per year. Those are their illustrative assumptions, so another couple would need to use their own benefit estimates and each spouse’s actual claiming and Medicare eligibility dates.
One Talcott illustration shown in the video provided $27,552 in annual annuity income. Added to the assumed $30,000 from Social Security, that produces $57,552 per year, or $4,796 per month.
That is above the basic-needs range I outlined and close to the $60,000 starting point for the comfortable range. Whether it feels comfortable depends on the couple’s actual expenses.
This is an illustration from the video, not a current quote or a payout available to everyone. Also, deducting Medicare premiums from Social Security does not make the combined figure fully after-tax spending money.
The contract illustrated also includes a death benefit. Any amount payable to beneficiaries depends on the contract’s terms and remaining benefit, so I would review that feature rather than assume every annuity returns the original premium.
Annuity guarantees depend on the issuing insurance company’s financial strength and claims-paying ability. Contract costs, withdrawal restrictions, and benefit terms also need to be reviewed.
👉 Want to see what an annuity could add to your retirement income? Visit johnstevenson.com to use my calculators or schedule a call with me.
Can You Create Guaranteed Income Without Using All Your Savings?
Yes. In the example, the couple is considering using only part of their assets for an annuity.
Here is the allocation discussed in the video for a hypothetical $1 million portfolio:
- $300,000 in an annuity to provide lifetime income.
- $300,000 in the stock market for potential long-term growth.
- $400,000 in cash and cash-oriented holdings for reserves and access, with attention to the terms of any CDs.
The idea is to create income while keeping other money available. This is one example, not an allocation I would recommend automatically for everyone.
If their investments grow, they could later consider purchasing another annuity to increase their income. That gives them another decision to make down the road rather than requiring them to commit everything today.
In the video, I mention the Rule of 72 when discussing potential growth. To clarify, it estimates doubling time by dividing 72 by an assumed annual return; doubling in about seven years would require roughly a 10% annual compound return, which is not guaranteed.
What If You Want More Retirement Income?
Two options I discuss are increasing the amount used to purchase an annuity or delaying when income begins. The right choice depends on your assets, your spending goals, and how long you want to keep working or wait for payments.
In the later-start illustration, the $300,000 annuity produces approximately $32,000 per year. Combined with assumed Social Security income of $40,000, that would provide about $72,000 annually, or $6,000 per month.
The Social Security figures are scenario assumptions, not a prediction that every couple’s benefits will rise from $30,000 to $40,000 by waiting two years. According to the Social Security Administration, for people born in 1960 or later, full retirement age is 67, and claiming at 65 reduces the monthly benefit.
In another illustration, increasing the annuity premium to $600,000 produces roughly $65,000 in annual annuity income. Add the assumed $40,000 from Social Security, and the total is approximately $105,000 per year, or $8,750 per month, before applicable income taxes.
That falls within the more affluent range I described. But even that amount will feel different depending on where you live and what you spend.
I would also consider how your expenses could change over time. A payment that covers your needs today may not buy as much in later years.
How Do You Choose the Right Annuity for Your Income Goal?
I sell annuities, and my approach is to compare options and explain what you are getting. I work with more than 70 carriers and thousands of variations because the right choice depends on your situation.
An annuity with a lifetime income rider is one option I frequently compare. I also look at single premium immediate annuities, or SPIAs, and deferred income annuities, or DIAs.
I often find income riders worth exploring for their income and flexibility, but I would not assume they always pay the most. Compare actual illustrations, fees, income start dates, access to money, and beneficiary provisions before choosing.
The goal is to find the contract that fits the income you need and the terms you are comfortable accepting. I can walk you through the PDFs, disclosures, and brochures so you understand those details.
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