Here's the question that keeps people up at night: will my money last?
Not "will my money grow." Not "will I beat the S&P." Just — will I still have enough at 84? At 89? At 93?
Nobody knows how long they'll live. And that one unknowable fact makes retirement planning with annuities the most practical approach we've seen as annuity experts. Because a life annuity is the only product that makes the question irrelevant. Your income shows up every month regardless of the answer.
The Real Problem With Retirement
Accumulation is the part everyone focuses on. Save more. Invest well. Watch it compound. There are a thousand books about it.
Distribution — actually living off your savings — gets almost no attention. And it's the harder problem by far.
When you're retired, you face three risks simultaneously:
- Longevity risk. You might live to 95. The average 65-year-old couple has a 50% chance that at least one spouse reaches 90.
- Sequence-of-returns risk. A market crash in your first few years of retirement can permanently damage your portfolio, even if the market recovers later. This is the silent killer of retirement plans.
- Withdrawal rate risk. The old 4% rule assumes 30 years of retirement. Live past 95 and the math breaks. Withdraw 5% to be comfortable and the math breaks faster.
A portfolio of stocks and bonds, no matter how well-diversified, cannot eliminate any of these risks. A life annuity eliminates all three.
The Two-Bucket Approach
This is the framework we walk every client through. It's simple. It works.
Bucket One: Your Income Floor. This is money you convert to guaranteed lifetime income. Social Security goes here. A pension if you have one. And a fixed life annuity. The purpose of Bucket One is to cover every bill you have to pay — housing, food, healthcare, insurance, utilities. The things that don't stop just because the stock market had a bad year.
Bucket Two: Your Growth Portfolio. This is everything else. Stocks, bonds, index funds, whatever you like. This money is for travel, hobbies, gifts to your grandkids, and long-term growth. Because your essentials are already covered by Bucket One, you can invest this money more aggressively. A bad year in the market is an inconvenience, not a crisis.
The beauty of two buckets is psychological as much as financial. When your bills are covered no matter what, you stop checking your portfolio every morning. You stop worrying about the next recession. You spend freely from Bucket Two because you know Bucket One has your back.
Building Your Income Floor: The Math
Let's walk through actual numbers.
The average retiree household spends about $4,500 per month on essentials. Social Security covers roughly $1,900 of that for a single person, or $3,200–$3,800 for a couple. That leaves a gap.
| Situation | Monthly Expenses | Social Security | Income Gap |
|---|---|---|---|
| Single retiree | $3,800 | $1,900 | $1,900/month |
| Couple (one higher earner) | $5,000 | $3,400 | $1,600/month |
| Couple (both moderate earners) | $5,000 | $3,800 | $1,200/month |
Now here's what a fixed life annuity can do for each scenario. These are approximate rates from top carriers as of early 2026:
| Your Age | Lump Sum Invested | Monthly Income (Life Only) | Annual Payout Rate |
|---|---|---|---|
| 62 | $200,000 | $1,100 | 6.6% |
| 65 | $200,000 | $1,265 | 7.6% |
| 68 | $200,000 | $1,390 | 8.3% |
| 70 | $200,000 | $1,440 | 8.6% |
| 75 | $200,000 | $1,660 | 10.0% |
A 65-year-old couple with a $1,600 income gap could close it almost entirely with a $250,000 joint-and-survivor SPIA from Pacific Life or MassMutual. Income starts within 30 days. Zero fees. Guaranteed for as long as either spouse is alive.
See today's live rates from all carriers here.
How Much Should Go Into Each Bucket?
There's no universal answer, but here's the range we see most often with our clients:
| Bucket | What Goes Here | Typical Allocation |
|---|---|---|
| Emergency Cash | 6–12 months of expenses in a high-yield savings account | $25,000–$60,000 |
| Bucket One (Income Floor) | Life annuity — enough to close the income gap | 30–50% of savings |
| Bucket Two (Growth) | Index funds, bonds, brokerage account | Remaining balance |
We never recommend putting everything into an annuity. You need liquidity. But the clients who struggle most in retirement are the ones with zero guaranteed income beyond Social Security. They're one bad market year away from real trouble.
A Real Planning Example
We worked with a client last fall — single woman, 64, recently widowed. She had $420,000 in a rollover IRA and was getting $2,100 from Social Security. Her monthly expenses ran about $4,300.
Here's the plan we built together:
- Emergency fund: $40,000 in a savings account
- Bucket One: $200,000 into a SPIA from New York Life (A++), life with 15-year certain — paying $1,195/month
- Bucket Two: $180,000 in a diversified index fund portfolio
Her income floor: $2,100 (Social Security) + $1,195 (annuity) = $3,295/month in guaranteed income. That covers her housing, healthcare, groceries, and utilities. The $1,005 gap to her full $4,300 budget comes from moderate Bucket Two withdrawals — about 6.7% of that portfolio, which is higher than ideal but entirely manageable because her floor is rock-solid.
If the market drops 30% next year, she adjusts her travel budget. She doesn't adjust her rent payment.
The Ladder Strategy: Don't Buy It All at Once
Some clients want to fund the income floor in stages rather than all at once. Smart move. Here's why.
Annuity rates increase with age. A 65-year-old gets a better rate than a 62-year-old. A 68-year-old gets better still. By laddering — buying a smaller annuity every 2–3 years — you capture rising rates, hedge against interest rate fluctuations, and maintain flexibility along the way.
| Purchase Age | Amount | Monthly Income |
|---|---|---|
| 62 | $75,000 | $415 |
| 65 | $75,000 | $475 |
| 68 | $75,000 | $522 |
| Total | $225,000 | $1,412/month |
Same total investment. But you didn't have to commit all $225,000 at 62. If your circumstances changed — health issue, inheritance, surprise expense — you could adjust the plan at each step.
What About Inflation?
This is the honest objection to fixed annuities, and we don't dodge it.
A SPIA pays the same amount in month one as it does in month 240. At 2.5% inflation, $1,200 today buys about $740 worth of goods in 20 years. That's real erosion.
Here's how we address it. The income floor covers essentials — and several of those costs (mortgage payments, property taxes in some states) don't inflate much. Social Security does adjust for inflation via COLA. And Bucket Two — your growth portfolio — is specifically there to outpace inflation over time.
Some carriers offer inflation-adjusted SPIAs, but the starting payment is 25–30% lower. In our experience, most clients prefer the higher fixed payment and let their investment portfolio handle the inflation hedge.
Tax Planning Across Both Buckets
Where your money comes from affects how it's taxed.
If you fund the annuity with IRA or 401(k) money (a direct rollover, which is tax-free to execute), every dollar of annuity income is taxed as ordinary income. Same as if you'd withdrawn it from the IRA yourself.
If you fund it with after-tax savings, you get the exclusion ratio benefit. The IRS treats part of each payment as a return of your principal — tax-free. For a 65-year-old, roughly half of each monthly check could be excluded from taxable income. That's a meaningful advantage.
We sometimes recommend a split: roll a portion of the IRA into the annuity for the guaranteed income, and use after-tax dollars for a second annuity to capture the exclusion ratio. Depends on the client's full tax picture. Our tax guide goes deeper on this.
Why This Works Better Than the 4% Rule
The 4% rule says you can withdraw 4% of your portfolio in year one, adjust for inflation each year, and have a high probability of not running out of money over 30 years.
Problems with this in practice:
- It was designed for a 30-year retirement. If you retire at 62 and live to 97, that's 35 years. The math gets thinner.
- It assumes a balanced portfolio that stays invested during downturns. Most retirees panic-sell in a crash — the data on this is overwhelming.
- It requires discipline. No one-time splurges. No helping a kid with a down payment. No unexpected medical bills. Real life doesn't work this way.
- Recent research from Morningstar suggests the safe withdrawal rate is closer to 3.3% in the current environment.
The two-bucket approach doesn't require willpower. Your essentials are covered by guaranteed checks. You can't panic-sell your annuity. You can't accidentally spend it too fast. The floor holds whether you're disciplined or not.
Getting Started
Our calculator shows you exactly how much guaranteed income your savings could generate at your age. Takes 30 seconds. Or request a personalized quote and we'll run rates across Pacific Life, New York Life, MassMutual, and every other A-rated carrier. You can also call us directly at 800-747-4201 — we answer the phone, and the conversation is free.
The point of retirement planning isn't to die with the most money. It's to never worry about running out. That's what the income floor does. And a fixed life annuity is the simplest way to build one.
