Picture two different retirements. In the first one, all your money stays invested. Every time the market has a bad week, you worry. You pull out 5% a year and hope it lasts. In the second one, part of your money goes into a guaranteed income annuity. It pays you every single month for the rest of your life. It does not matter what the market does.
Same amount of money. Two very different retirements. Let’s look at the real numbers so you can see which path may work better for you.
I want to be clear before we start. This is for learning only. This is not a tip to buy or sell stocks, bonds, or mutual funds. Please talk to a licensed securities advisor before you make any decision to liquidate any type of securities product.
Annuity vs Portfolio: Meet the Couple
Let’s build an example. We have a married couple. Both are 65 years old. They worked hard and saved up $1 million for retirement.
Here is what their income picture looks like:
| Item | Amount |
|---|---|
| Money saved | $1,000,000 |
| Social Security (total) | $45,000 per year |
| Income they want | $95,000 per year |
| The Gap | $50,000 per year |
That $50,000 gap is the important number. It is the amount they need to find every year, on top of Social Security, to live the way they want.
A quick note: this example does not cover everything. Things like inflation, taxes, IRMAA limits, and different account types (like IRA vs. Roth) all matter too. But for this comparison, we are keeping it simple. We are looking at one steady withdrawal amount each year, so it is easy to compare.
Annuity vs Portfolio: Option One, the Traditional Portfolio
The first way to fill the gap is the traditional way. The couple leaves the whole $1 million invested in the market. Every year, they pull the $50,000 they need straight out of that account.
Here is what that means:
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- Taking out $50,000 from $1,000,000 is a 5% withdrawal rate each year.
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- Is that a crazy plan? No. There are many times in history when this could work out fine.
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- But it is a little high, and it comes with real risk.
Here is the hard part nobody likes to talk about. This whole plan depends completely on the market. If the couple retires right when the market drops, they could have a few bad years right at the start. That kind of early hit is hard to recover from. The portfolio may never fully bounce back.
That means every year, they are checking their statements. Probably every month. Watching the news. Wondering if this is the year everything falls apart.
That is not retirement. That is trading one kind of stress for another.
Annuity vs Portfolio: Option Two, the Guaranteed Income Annuity
Here is the second way to fill the gap.
Instead of leaving the full $1 million in the market, the couple takes $400,000 of it and puts it into a guaranteed income annuity.
At today’s rates, that $400,000 gives this 65-year-old couple a guaranteed income of $29,750 every year, for life. It does not matter how long they live. It does not matter what happens in the market.
Now let’s add that to their Social Security:
| Guaranteed Income Source | Amount Per Year |
|---|---|
| Social Security | $45,000 |
| Guaranteed Annuity Income | $29,750 |
| Total Guaranteed Income | $74,750 |
Just like that, they have almost $75,000 a year showing up automatically. Guaranteed. And this is before they have touched a single dollar of their remaining investments.
Annuity vs Portfolio: The Math That Really Matters
Here is the part I want you to pay close attention to.
Remember, their goal was $95,000 a year in income.
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- Without the annuity: they need to pull the full $50,000 gap from their portfolio every year.
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- With the annuity: $74,750 is already guaranteed. That means their portfolio only has to cover an extra $20,250 per year — not the full $50,000.
| Without Annuity | With Annuity | |
|---|---|---|
| Guaranteed Income (SS only, or SS + Annuity) | $45,000 | $74,750 |
| Amount Needed From Portfolio | $50,000 | $20,250 |
| Withdrawal Pressure on Portfolio | High | Much Lower |
That is a big difference. Less pressure on the portfolio means less stress, and a lot less risk if the market has a rough year.
So, Annuity vs Portfolio: Which One Wins?
The honest answer is, it depends on you. This is not about saying annuities always win, because that is just not true. It is about seeing the real math side by side, since nobody usually shows people this comparison in an honest way.
Same $1,000,000. Two very different ways to structure a retirement. Now you have seen the numbers for both.
If you want to see what this side-by-side comparison could look like using your own numbers, book a short call by clicking the button in the top right corner of this page, and let’s figure it out together.
Podcast Episode 113: $1 Million Decision: Annuity vs Portfolio — Which Actually Pays More?
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