How much money do you really need to retire comfortably? The answer is different for everyone, but you might not need as much as you think.
A lot depends on how much income you want, when you plan to retire, and how early you start planning. Instead of focusing only on your retirement account balance, I want you to think about the paycheck that money could provide.
One of the tools I focus on for my own retirement is an annuity contract that provides lifetime income. Let’s walk through an example so you can see how that could fit into your retirement plan.
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
1. Start With the Income You Need to Live Comfortably
Before you decide how much money you need saved, figure out what you want your retirement income to cover. That includes your regular bills, your lifestyle, and some room for unexpected expenses.
Start by looking at:
- Your essential monthly bills.
- Travel, hobbies, and other things you enjoy.
- Healthcare and potential out-of-pocket expenses.
- Income you expect from pensions or Social Security.
- The additional income your savings need to provide.
You might assume you will only need 80% of your current income because you will no longer be saving for retirement. But I would ask you a couple of questions: Are you planning to travel? What happens if your healthcare expenses increase?
Maybe a doctor you want to see does not take your insurance. Maybe something comes up that you were not expecting, and having extra monthly cash flow would make it much easier to handle.
💡 Pro Tip: Build your retirement income goal around your actual bills, wants, and needs instead of relying only on a percentage of your current paycheck.
2. How Can an Annuity Help Create a Retirement Paycheck?
One reason I like annuity contracts is that they can provide a pension-like income stream you purchase from an insurance company. With the right lifetime income option, you can turn a portion of your savings into a contractual retirement paycheck.
That is how I think about using them for my own retirement. I want dependable income coming in while keeping other money invested for growth.
Rental properties and dividend-paying stocks are other ways people generate income. If your main goal is a specific amount of contractual lifetime income, though, I believe an annuity is worth comparing.
On my website, you can use the annuity calculators to explore what your money could provide. I recommend comparing income rider options with single premium immediate annuities, or SPIAs, and deferred income annuities, or DIAs.
I often find income riders competitive when comparing payouts, but I would still check the alternatives for your particular situation. Your age, state, income start date, and whether you want individual or joint income can change the results.
👉 Want help comparing your options? Visit my website to schedule a call with me.
3. Using $250,000 for Income Starting at Age 60
In the video above, I walk through an example involving a married couple living in Idaho. Both spouses are 52, and they want to stop working at age 60.
They have $250,000 in an IRA that came from an old 401(k). This is only part of their retirement savings, and they want to use it to create joint lifetime income beginning in approximately eight years.
They are also concerned about what could happen in the stock market before they retire. We have seen substantial declines before, and they do not want all their retirement money exposed to that uncertainty.
For the age-60 scenario shown in the video, the leading illustrated payout was approximately $32,000 a year. Midland appeared at the top of that particular comparison.
Those figures belong to the illustration discussed in the video above. They are not a current quote or a promise that another couple investing $250,000 would receive the same payout.
Would $32,000 a year be enough? For some people, that income combined with a pension or other resources might cover what they need.
For others, it would only be one part of their plan. The point is to compare the income available with the life you want to live.
Why the Exact Income Start Date Matters
In the video, I also discuss a timing detail involving the younger spouse’s birthday and how the illustrated Midland option determines income eligibility and payouts. That can affect how the waiting period appears in a comparison.
I would want to verify your exact birthdays, contract issue date, and intended income start date before relying on a number. A detail that helps one couple may not apply the same way to another.
4. What Happens If You Wait Until Age 65?
Next, I look at what happens if the same couple waits until age 65 to begin income. Instead of an approximately eight-year deferral, they would be looking at about 13 years.
In that comparison, the leading illustrated annual income increased to approximately $43,000. Clear Spring appeared first, with Athene close behind, followed by other carriers.
That is an important reason to compare contracts using your intended retirement date. The company showing the highest payout at age 60 may not show the highest payout at age 65.
The Athene illustration discussed in the video above showed an income benefit base of approximately $637,000 at age 65. Applying a 6.8% payout factor produced roughly $43,000 in annual income.
The benefit base is a figure used to calculate income. It is not a cash balance you can withdraw, and a benefit-base roll-up rate is not the same as an investment return on your money.
The illustration included bonuses and a simple roll-up feature that affected the income calculation. Those details need to be reviewed alongside the actual contract terms.
Waiting longer can increase the annual payout, but it also means starting your payments later. The right choice depends on when you need the income and what other resources you have available.
💡 Pro Tip: Compare income at more than one retirement age before selecting a contract. Your intended start date can change which option looks most attractive.
5. Keep Other Savings Available and Build Income Over Time
The couple in this example is not putting all their money into an annuity. They are using one portion of their savings for a specific purpose: future retirement income.
That distinction matters. You still need money available outside the contract for emergencies, unexpected expenses, and other goals.
Annuities can have surrender charges and restrictions on withdrawals, so I would want you to understand those terms before committing money. The guarantees also depend on the issuing insurance company’s financial strength and claims-paying ability.
You can also continue saving while that future income is in place. In the video above, I explain how someone might keep contributing to a 401(k), then consider purchasing another income contract later.
That approach can help you build several sources of retirement income over time:
- Income from an existing annuity contract.
- Additional income from a later annuity purchase.
- Social Security when you begin benefits.
- Any pension income you already have.
Some people may want larger contracts or contracts spread across several insurance carriers. Others may find that one income contract, combined with their existing resources, meets their needs.
👉 Want to see how an annuity could fit alongside your other retirement income? Schedule a call with me through my website.
Conclusion
How much money you need to retire comfortably comes back to the income you want and the resources available to provide it. There is no single savings number that works for everyone.
Start with your bills, wants, and needs. Then look at your expected income and determine how much more you want your savings to produce.
My goal is to help you see the available annuity options clearly before you make a decision.
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