If I were retiring this year, my goal would not be to choose between guaranteed income and the stock market. I would build a retirement income plan that uses both.
I like being invested in the market because I want long-term growth and flexibility. But I also value guarantees, especially when I am depending on my savings to support my lifestyle for the rest of my life.
My approach would be to use a portion of my portfolio to create contractual lifetime income through annuities, then leave another portion invested in stocks and possibly ETFs. That would give me an income foundation while allowing the rest of my money to continue working in the market.
In this article, I’ll share exactly how I would think through that strategy.
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1. I Would Start by Building a Guaranteed Income Floor
The first question I would ask is simple: How much dependable income will my wife and I need every year?
Social Security may cover part of that amount. If you have a pension, that may cover another part. I would then consider using an annuity to help fill the remaining gap with contractual lifetime income.
That income floor is important because retirement is different from the accumulation years. While I am working, I can usually wait for the market to recover. Once I am retired and withdrawing money, a major downturn can have a much greater effect on both my finances and my peace of mind.
I do not want every vacation, family visit, or monthly expense to depend on what the stock market happens to be doing that year. I want a portion of my income to continue whether the market is rising or falling.
💡 Pro Tip: Start with the income your household actually needs, then compare that amount with Social Security, pensions, and any other dependable income sources. The difference is the income gap your portfolio may need to cover.
👉 Want help comparing ways to fill your retirement income gap? Schedule a call with me.
2. I Would Use Only a Portion of My Portfolio for Annuities
I would not put all of my money into annuities, and I would not leave all of it exposed to the market. I would divide the money according to the job I need each portion to perform.
One side of the plan would be designed for guarantees. Depending on my needs, that could eventually include several annuity contracts started at different times.
The other side would remain invested in stocks and possibly ETFs. That money would be there for growth, liquidity, future purchases, legacy goals, and the possibility of creating more income later.
This is what I mean by compartmentalizing retirement money. Instead of expecting every dollar to provide growth, liquidity, safety, and lifetime income at the same time, I would assign different dollars to different jobs.
That also gives me more freedom with the invested portion of my portfolio. When I know my basic income is covered, I can choose a market strategy based on my actual risk tolerance instead of feeling forced to sell investments whenever I need income.
3. I Would Consider Deferring Joint Lifetime Income
In the example I showed in the video above, I used a 59-year-old Florida resident with a 55-year-old spouse, $900,000 allocated to an annuity, and joint income beginning six years later. At that point, the husband would be 65 and the wife would be 61.
The illustration showed annual joint lifetime income of $97,831. Because it was joint income, the payment was designed around both spouses rather than one person alone.
A younger spouse can reduce the initial joint payout because the insurance company may need to continue the income for a longer period. Even so, joint income can be valuable when the goal is to protect both spouses for as long as either one is living, subject to the exact terms of the contract.
For couples with a larger age gap, I would also compare other structures. That may include two separate contracts with single-life payouts or a combination of single and joint income.
There is no single structure that is right for everyone. The best option depends on both ages, the state where you live, when income begins, how much money you allocate, and what you want the contract to accomplish.
I would also compare an income-rider strategy with a single-premium immediate annuity, commonly called a SPIA. An income rider may produce the strongest result in some situations, while a SPIA may be more competitive in others, especially when income needs to begin immediately.
👉 Want to compare single, joint, immediate, and deferred income options? Use the calculators or schedule a call with me.
4. I Would Separate the Benefit Base From the Account Value
This is one of the most important parts of the example.
The illustrated annuity included an 8% compounded increase to its income benefit base during the six-year deferral period. That did not mean the actual account value was guaranteed to earn 8% per year.
The benefit base is an accounting value used to calculate future income. In the illustration, the $900,000 benefit base grew to roughly $1.428 million after six years. A 6.85% withdrawal factor was then applied, producing approximately $97,831 per year in joint lifetime income.
The benefit base is generally not the same as the contract’s cash value, and it is not usually an amount you can withdraw as a lump sum. The actual account value follows the crediting terms, fees, withdrawals, and other provisions of the specific contract.
That is why I would never compare an annuity’s benefit-base growth rate directly with a stock market return. They serve different purposes. I would be buying the annuity primarily for the contractual income calculation, not because I expect the account value itself to compound at the rider’s stated roll-up rate.
It is also important to understand that a payout percentage is not the same thing as an investment return. An annuity payment can include earnings, principal, and the insurance company’s longevity pooling.
💡 Pro Tip: Before purchasing an annuity, ask to see the benefit base, account value, surrender value, rider charge, withdrawal percentage, death benefit, and income payment on the same illustration. That makes it much easier to understand exactly what is guaranteed and what is not.
5. I Would Keep Money Invested for Growth and Flexibility
The annuity would be my income tool, but it would not replace the growth side of my portfolio.
I would still want money invested in stocks and possibly ETFs because I want the potential for long-term growth. That invested money could support future spending, inflation needs, emergencies, gifts to family, or a legacy for my children.
I also would not invest only to leave the largest possible account behind. I want to enjoy the money I spent years saving.
My children can build their own lives, and I can help them while I am alive. At the same time, I want my wife and I to be able to travel, see our family, and enjoy retirement without constantly worrying that taking income today will ruin the plan tomorrow.
A traditional market-based withdrawal strategy may work well for some households. For example, a 4% initial withdrawal from a $1 million portfolio would equal $40,000 in the first year.
But $40,000 may not be enough for everyone. That is why some retirees compare market withdrawals with annuity income, where the contractual payout percentage may be higher than the percentage they feel comfortable withdrawing from an investment portfolio.
That does not mean the annuity has earned that higher percentage as a return. It means the contract is structured to distribute income under its terms, potentially for life.
6. I Would Add More Guaranteed Income Over Time
I would not necessarily build the entire income plan with one purchase on one day. I like the idea of stacking income at different stages of retirement.
For example, I might fund a deferred annuity now and begin its income in five or six years. Later, perhaps around age 70, I could take another $200,000 or $300,000 from the investment portfolio and compare options for additional immediate income.
Because I would be older at that point, age-related payout factors may help produce more income per dollar than they would have at a younger age. The exact result would still depend on my age, my wife’s age, the carrier, the product, the payout option, interest-rate conditions, and the contract available at that time.
In the hypothetical example from the video above, another $300,000 might add around $30,000 of annual income. Combined with the original annuity income and an estimated $50,000 in Social Security, the household income could potentially rise from roughly $148,000 to around $178,000, before any later increase in Social Security benefits.
Those figures are only illustrations, not promises. But they show how I would approach the planning process: establish an income base, preserve money for growth, and then consider adding more guaranteed income as I age.
7. I Would Build a Plan I Could Live With During a Market Decline
The real test of a retirement plan is not how it feels when the market is climbing. It is how it feels when the market drops and I still need to pay bills.
If the stock side of my portfolio fell sharply, I would not enjoy seeing the lower balance. But I would be grateful that my contractual income was still supporting the lifestyle I planned.
I could still take the trip with my wife, visit my grandchildren, and handle regular expenses without automatically selling investments after a decline. That will give the market portion of my portfolio more time to recover..
For me, that emotional benefit matters. As people get older, they often become more protective of their savings because they have less time to recover from a major loss.
My ideal retirement plan would help me generate as much dependable income as reasonably possible from the portion dedicated to income while preserving another portion for growth and flexibility. That combination is how I would protect my income without giving up on the market entirely.
Conclusion
If you are retiring right now, do not assume the annuity with the biggest advertised number is automatically the best choice. I would compare the complete contract and the income it produces for my specific age, state, deposit, spouse, and start date.
I have access to more than 70 annuity carriers, and my calculators are designed to help compare available options. You can model single or joint income, immediate or deferred income, and different deposit amounts before deciding what fits your plan.
Rates, rider terms, payout factors, product availability, and carrier strength can change. Guarantees also depend on the claims-paying ability of the issuing insurance company, and withdrawals beyond the contract’s terms may reduce benefits or trigger surrender charges.
My job is to show you the available illustrations, explain why I may recommend one option over another, answer your questions, and let you decide without pressure.
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