You have spent years saving and investing. Now retirement is approaching, and the question changes: How do you replace your paycheck when you retire and turn that portfolio into income you can count on?
That transition can feel a little scary, especially if Social Security or a small pension will not cover the lifestyle you are used to. You have worked hard to build your savings, and now you need those savings to help support you.
I want to walk you through why I look at annuities for lifetime income, what the payout examples in my video show, and which differences matter when comparing your options.
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. What Can Replace Your Paycheck in Retirement?
There are several ways to create retirement income. Dividend stocks, municipal bonds, rental properties, and withdrawals from your investment portfolio can all play a role.
I like being in the market and having the opportunity for growth. But as retirement gets closer, I also want to know that my income is covered when I scale back or stop working.
That is why I look closely at annuity contracts. An annuity designed for lifetime income can function like a pension you purchase for yourself, providing contractual payments to help supplement Social Security or an employer pension.
The appeal is straightforward: Some people want income that requires less ongoing management. They want a paycheck to continue without having to manage rental properties or make regular decisions about selling investments.
2. How Much Income Could an Annuity Provide?
In the video above, I run an illustration for a 70-year-old woman in Connecticut who puts $100,000 into an annuity and wants income to begin immediately. Those details matter because the payout depends on the person, the contract, and the options selected.
Some of the results initially show accelerated income options. These provide more income at the beginning, followed by a reduction later, so I filter those out to compare options without that scheduled reduction.
In that particular comparison, the F&G option shows annual lifetime income of $8,610 on a $100,000 premium. That is a payout rate of about 8.6% of the original premium.
Here is what that illustration means:
- A $100,000 premium produces $8,610 in annual lifetime income under the illustrated terms.
- Continuing that payment for 30 years would produce about $258,000 in total payments.
- Scaling the same illustration to $1 million produces approximately $86,100 per year.
These are examples from the video, not a current quote or a promise of what you will receive. The 8.6% figure is an income payout rate, not an investment return or interest rate.
I also show other carriers with comparable income options. The purpose of comparing them is to find out which contract fits your situation, rather than assuming one carrier will always provide the highest payout.
💡 Pro Tip: Check whether an illustrated payment stays level or decreases later. A larger starting payment does not tell you the whole story.
👉 Want to see income estimates for your situation? Use the website’s annuity calculators.
3. Why Separate Lifetime Income From Growth Money?
Would you feel comfortable withdrawing about 8.6% from your investment portfolio every year for the rest of your life? Many people would hesitate, especially when they consider what market downturns could do to that plan.
An annuity payout works differently from a portfolio withdrawal. You are paying a premium for contractual income, and the money you commit should generally be money you intend to use for that purpose over the long term.
Could the stock market produce more growth? It could, and I am not suggesting you have to give up investing to create retirement income.
Instead, I like to separate money by its purpose. Money intended for growth or a future inheritance can have one job, while money allocated to lifetime income can help you enjoy retirement today.
The annuity I show is primarily an income product. Its appeal is the illustrated lifetime payment, rather than the possibility of maximizing stock market growth.
That distinction matters because building a larger balance and creating a dependable paycheck are different goals. Your retirement plan can make room for both.
4. How Do Income Riders Compare With SPIAs and DIAs?
On my website, I encourage people to compare the income rider calculator with the SPIA and DIA calculators. A SPIA is a single premium immediate annuity, while a DIA is a deferred income annuity.
An income rider can be useful when you want flexibility around when payments begin. Depending on the contract, you may be able to defer income and later choose to start it earlier or later than originally planned.
Traditional SPIAs and DIAs generally involve committing your premium to a payment arrangement with much less flexibility once established. You should not assume that you can change the starting date or cancel the arrangement and recover your premium; the specific contract controls what is available.
An annuity with an income rider may retain an account value and a cash surrender value. That can provide access to remaining money, but it does not mean you can always recover your original premium without a cost.
In the illustration, I show a surrender charge schedule and discuss a charge of around 5% at a particular point several years into the contract. That is specific to the example, not a standard charge for every annuity.
Before choosing a contract, I would review:
- When lifetime income can begin and whether that timing can change.
- Any surrender charges that apply if you exit early.
- The available cash surrender value and death benefit.
- How withdrawals affect the remaining value and income benefits.
As income payments continue, the remaining account value may eventually be depleted. A qualifying lifetime income guarantee can continue under the contract even after that value is gone, but there may no longer be money available to surrender or leave to beneficiaries.
Annuity guarantees depend on the issuing insurance company’s claims-paying ability and the contract’s terms.
💡 Pro Tip: Compare the account value, cash surrender value, and lifetime income separately. Each tells you something different about what the contract provides.
👉 If you want help understanding those differences, schedule a call with me through my website.
5. How Do You Find the Right Retirement Paycheck?
Start with the income you want to replace and consider what Social Security and any pension already provide. Then compare options for the additional income you need.
The calculators at johnstevenson.com let you explore estimated payouts without first having to contact me. I recommend checking the income rider options along with SPIAs and DIAs because the strongest payout can vary, particularly at older ages.
For me, the goal is to help you turn part of what you have saved into income you can enjoy. If you want a more passive way to replace your paycheck, an annuity designed for lifetime income is worth comparing carefully.
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