If I were building a retirement plan with $2 million today, I would not put all of it into one strategy. I would use part of the money to create contractual lifetime income with an annuity and leave the rest invested for potential growth.
The goal would be simple: create enough dependable income to enjoy retirement while allowing the remaining assets to compound. Here is how I would structure that plan based on my age, my wife’s age, and when I want the income to begin.
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1. Start With the Income I Want
For this example, I am going to assume I am 50 years old and my wife is four years younger. I want the option to begin receiving income at age 60, even if I do not fully retire at that point.
I like the idea of having extra income coming from a contract because it gives me a degree of certainty. I can still own market-based investments, but I do not want every part of my retirement income exposed to market risk.
That is where an annuity with an income rider may fit into my retirement plan. I am not buying this portion primarily for growth or a legacy; I am buying it to create income that can continue for the rest of both our lives.
👉 Want to see what an annuity may pay based on your age, state, and timeline? Use my annuity calculators on my website.
2. Use $500,000 to Create Joint Lifetime Income
My first option would be to place $500,000 or 25% of the $2 million portfolio into an annuity and defer the income for 10 years. In the specific Nevada example shown in the video above, the contract produced approximately $68,000 per year in joint lifetime income beginning when I am 60 and my wife is 56.
That $68,000 would be guaranteed for the rest of my life and the rest of my wife’s life, subject to the terms of the contract. That joint-income feature is especially important to me because the income is designed to continue for the surviving spouse.
My example used a North American annuity linked to the S&P 500. The insurance company uses call options tied to the index, so the contract may receive interest when the index performs, although returns are capped and will not equal the full return of the S&P 500.
But that potential interest is not the main reason I would buy this contract. For this $500,000, my priority is guaranteed lifetime income.
3. Understand What the Income Rider Is Doing
It is important to look at the guaranteed values and understand the difference between the account balance and the income benefit base. In my video example, the account balance can decline even before withdrawals begin because rider fees are being deducted.
If the contract receives no credited interest during an extended recession, the account balance could fall relatively quickly. However, the rider fees pay for an 8% guaranteed annual growth rate in the pension value, also called the benefit base in the illustration in the video.
The first-year benefit base rises to $540,000. After the 10-year deferral period, it reaches approximately $1,079,462, and applying the 6.3% joint payout rate creates roughly $68,000 in annual lifetime income.
The benefit base is used to calculate income; it is not the same as the amount available to withdraw as a lump sum. What I care about in this part of the portfolio is using $500,000 to buy a large future income stream.
By age 95, the illustration shows that my wife and I could have received almost $2.5 million in total income. That is why I view this allocation as an income purchase rather than a traditional growth investment.
💡 Pro Tip: When comparing annuities, do not look only at the projected account value. If income is the goal, compare the benefit base, payout percentage, rider fees, deferral period, and joint lifetime payout.
4. What If I Used $1 Million Instead?
With a $2 million portfolio, I would also consider using half of it for guaranteed income. Based on the same example, increasing the annuity allocation from $500,000 to $1 million would double the joint lifetime income from $68,000 to $136,000 per year.
If I claimed Social Security at age 62 and received approximately $30,000 per year, I would have about $166,000 in combined annual income. If my house were paid off, that could give my wife and me substantial flexibility to travel, spend time with our grandchildren, and enjoy the money we worked to accumulate.
The other $1 million would remain invested in the stock market, specifically the S&P 500 in my example. My planning assumption is that it could double approximately every seven years, but that is not guaranteed; actual market returns can be higher or lower, and losses are possible.
The point is not that the market will follow a perfect seven-year schedule. The point is to separate the portfolio by purpose: one part creates lifetime income, while the other part remains positioned for growth.
👉 If you want help comparing how much income $500,000 or $1 million could create, schedule a call with me.
5. Let the Remaining Assets Grow and Buy More Income Later
I do not necessarily have to make every retirement-income decision at once. If the invested portion grows, I can use some of it later to purchase additional guaranteed income.
For example, if my remaining assets reached approximately $2.5 million by age 60, I might use another $500,000 to create roughly $50,000 of additional annual income. That would still leave about $2 million invested.
If that invested money later grew to $4 million around age 67, I might use another $1 million to buy approximately $80,000 of additional income. I could then leave the remaining $3 million invested for further potential growth.
If the portfolio eventually reached $6 million, I might decide to use $2 million to purchase another $160,000 in annual income. Following that type of staged approach could potentially bring my total annual income into the $400,000 to $500,000 range in this hypothetical scenario.
This is how I would address inflation: allow part of the portfolio to pursue growth and periodically convert some of that growth into more lifetime income.
6. How Much of the Portfolio Should Go Into an Annuity?
There is no single percentage that is right for everyone. In my own $2 million example, using only 25% of the portfolio could create about $68,000 in annual joint lifetime income, while using 50% could create about $136,000.
My general rule of thumb is not to place more than 70% to 80% of total liquid assets into annuities. If I can accomplish the income goal with less, I would use less.
My goal is not to put as much of someone’s money into an annuity as possible. My goal is to use the least amount of money necessary to produce the most suitable income for that person.
Age, state of residence, deferral period, single or joint income, and the available carrier options can all change the payout. That is why I believe you should compare multiple products instead of assuming one annuity will be best for everyone.
💡 Pro Tip: Decide how much dependable income you need before deciding how much money to place in an annuity. Start with the income gap, then find the smallest reasonable allocation that can fill it.
7. Research the Options Before Scheduling a Call
You should be able to research annuities without feeling pressured into buying one. My calculators show multiple carriers and options so you can compare potential payouts based on your information.
Think of it like browsing homes online before calling a real estate agent. You can first see what is available, learn how the numbers work, and arrive at the conversation better informed.
Once you have reviewed the options, you can schedule a Zoom meeting with me if you feel comfortable moving forward. I will be happy to answer your questions and help you determine whether an annuity belongs in your retirement plan.
Conclusion
If I were building a retirement plan with $2 million today, I would use part of the portfolio to create contractual lifetime income and keep the rest invested for potential growth. Depending on the income I wanted, I might allocate $500,000 for approximately $68,000 in joint annual income or $1 million for approximately $136,000, based on the specific illustration discussed in the video.
Retirement is not only about accumulating money forever. At some point, I want to use the money I worked for, enjoy it with my family, and create an income plan that helps me feel confident about the future.
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