If you have $3 million and you’re thinking about buying an annuity, one of the biggest questions is simple:
How much should I actually annuitize?
Not all of it. Not automatically. And in many cases, not even close.
The goal is not to put as much money as possible into an annuity. The goal is to use the least amount of assets necessary to create the most dependable lifetime income possible.
That way, you can cover your income needs, keep liquidity available, and still allow other parts of your portfolio to grow.
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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How Much of $3 Million Can You Put Into an Annuity?
One thing many people don’t realize is that insurance companies usually will not let you put all of your liquid assets into an annuity.
The most I’ve typically seen an insurance company allow is about 80% of total liquid assets.
So, if you have $3 million in liquid assets, the maximum you may be able to annuitize is around:
$2.4 million
That would leave about:
$600,000 outside the annuity
But just because you can put $2.4 million into an annuity does not mean you should.
You might need $2 million.
You might need $1.5 million.
You might only need $500,000.
It all depends on your income needs, your liquidity needs, your Social Security, your other investments, your spouse, your risk tolerance, and what kind of lifestyle you want in retirement.
💡 Pro Tip: The best annuity strategy is usually not “put in the most money.” It is “use the smallest amount needed to generate the income you want.”
👉 Want help comparing how much of your $3 million should be used for guaranteed lifetime income? Click here to schedule a call.
Annuitizing $2.4 Million of a $3 Million Portfolio
Let’s look at an example.
Assume someone has $3 million in liquid assets. They are 60 years old, their spouse is 61, and they want income to begin in 5 years.
They decide to put $2.4 million into an annuity and keep $600,000 in cash or liquid savings.
In this example, one of the top income options showed a guaranteed income benefit growing at 8% for five years.
After five years, the benefit base grows to roughly $3.5 million.
Then that amount is multiplied by a 7.2% joint lifetime withdrawal rate.
That creates about:
$253,900 per year for life
That is over $21,000 per month in guaranteed lifetime income.
Also, this is joint lifetime income, if one spouse passes away, the surviving spouse continues receiving the income.
That is the reason people use these types of annuity contracts. They are not buying them to beat the stock market. They are buying them to create their own private pension.
You Are Buying Income, Not Legacy
This is one of the most important things to understand.
When you buy an annuity for lifetime income, the account balance is not the main point.
The income is the main point.
In the $2.4 million example, the income is designed to continue for life, even if the account value eventually goes to zero.
That can be hard for some people to wrap their mind around, because they are used to thinking in terms of growth.
But with a lifetime income annuity, you are essentially buying a pension.
If you live a long time, the annuity can pay far more than what you originally put in.
If both spouses pass away early, whatever is left in the account value will typically go to beneficiaries, depending on the contract.
And if you cancel early, you may have access to the remaining account value, although surrender charges may apply.
So, you need to understand what you are buying.
You are not buying unlimited liquidity.
You are not buying stock market growth.
You are buying guaranteed contractual lifetime income.
💡 Pro Tip: If your main goal is income you cannot outlive, an annuity can make sense. If your main goal is full liquidity and maximum market growth, you probably do not want to annuitize too much.
👉 Want to see what guaranteed income could look like for your situation? Click here to schedule a call.
What If You Annuitize $2 Million Instead?
Now let’s say you don’t want to put $2.4 million into the annuity.
Maybe you want more liquidity.
Maybe you want more money available for investing.
Maybe you want more flexibility.
If you used $2 million instead, the income in this example would be around:
$211,000 per year for life
That is still a very strong guaranteed income stream!
For many retirees, $211,000 per year may be more than enough, especially when combined with Social Security or other income sources.
This is why I always look at the income need first.
If $2 million solves the income problem, why put $2.4 million into the contract?
The extra $400,000 might be better used for savings, emergencies, future annuity purchases, long-term care planning, legacy planning, or market growth.
What If You Annuitize Half of Your $3 Million?
A lot of my clients like the idea of annuitizing about half.
So, with a $3 million portfolio, that would mean using:
$1.5 million for guaranteed lifetime income
In this example, that could create around:
$158,000 per year for life
Then, if Social Security adds another $40,000 per year, now you may be looking at roughly:
$198,000 per year of retirement income
That can be a very comfortable income floor.
And you still have the other $1.5 million outside the annuity.
You could keep part of it in cash.
You could invest part of it.
You could use part of it for future annuity purchases.
You could leave it for beneficiaries.
That is why annuitizing half can be a good middle-ground strategy for some people. It gives you meaningful guaranteed income while still preserving a large amount of flexibility.
Why I Like the “Stacking Income” Strategy
One strategy I like is what I call stacking annuity income.
Instead of putting everything into one annuity at one time, you can use part of your money now and potentially add more income later.
For example, you might annuitize $1.5 million today.
Then you keep the other $1.5 million outside the annuity.
Maybe $500,000 stays liquid for emergencies.
Maybe $1 million stays invested for future growth.
If that outside money grows over time, you could later use a portion of it to buy another annuity contract and add another layer of guaranteed income.
That means your income can potentially increase over time, while your original income floor is already protected.
This can be especially helpful if inflation is a concern.
Instead of trying to solve every future need with one annuity today, you can create a base level of income now and add more income later if needed.
💡 Pro Tip: Stacking annuities can help create income now while leaving room for future flexibility, growth, and inflation planning.
👉 Want help deciding whether to annuitize all at once or stack income over time? Click here to schedule a call with me.
Why Keeping Liquidity Matters
One of the biggest mistakes I see is when people want to put too much money into an annuity.
I understand why.
They see the guaranteed payout.
They like the idea of lifetime income.
They want safety.
But you still need liquidity.
You need money for:
- Emergencies
- Medical expenses
- Home repairs
- Travel
- Family needs
- Market opportunities
- Future planning changes
That is why I don’t want people putting every dollar into an annuity.
Even if an insurance company allows you to put in up to 80% of your liquid assets, that does not automatically make it the right move.
The right amount is the amount that gives you the income you need without making you feel trapped.
So, How Much Should You Annuitize If You Have $3 Million?
Here is the simplest way I would think about it.
If you want maximum guaranteed income, you may look at the highest allowable amount, which could be around $2.4 million in this example.
If you want strong income with more flexibility, $2 million may be a better fit.
If you want a balanced approach, $1.5 million may be a very reasonable starting point.
If you only need a smaller income gap filled, you may only need $500,000 to $1 million.
There is no one-size-fits-all answer.
The right number depends on what you want your money to do.
Ask yourself:
- How much guaranteed income do I actually need?
- How much income will Social Security provide?
- How much liquidity do I want to keep?
- Do I want to leave money invested for growth?
- Do I want to leave a legacy?
- Am I comfortable using more money now, or would I rather stack income later?
Once you answer those questions, the right annuity amount becomes much clearer.
Conclusion
If you have $3 million and you are wondering how much to annuitize, my answer is this:
Do not start with the annuity amount.
Start with the income goal.
Figure out how much guaranteed lifetime income you want, then use the least amount of assets necessary to create that income.
That gives you the best balance of income, liquidity, growth potential, and flexibility.
An annuity can be a powerful tool, especially if you want pension-like income for the rest of your life. But it should be designed around your retirement plan, not the other way around.
I always encourage people to research first. Go to my website, and use my annuity calculators to see what different payout options look like.
You can compare single life, joint life, different deposit amounts, different states, and different income start dates.
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