One of the biggest fears facing retirees today isn’t boredom, health issues, or even the rising cost of living. It’s the fear of outliving their money.
And it’s a valid concern.
With people living longer, markets remaining unpredictable, and inflation eating away at purchasing power, ensuring your retirement savings last a lifetime can feel overwhelming. But there’s one powerful tool that can help take that fear off the table: annuities.
In this article, we’ll walk you through what annuities are, how they work, and how you can use them to make sure your money lasts as long as you do.
The Risk of Outliving Your Savings Is Real
Retirees today are living longer than ever before. According to the Social Security Administration, a 65-year-old man has a 50% chance of living to age 84, and a woman has a 50% chance of living to age 87. Many will live into their 90s.
That’s great news — but it also means your savings may need to last 25–30 years or more.
Traditional retirement strategies that rely on drawing down a portfolio of stocks and bonds can work — but they come with risks:
- Market volatility
- Sequence of returns risk
- Longevity risk
- Overspending or unexpected costs
Even with careful planning, it’s difficult to predict exactly how much you’ll need — or how long you’ll need it. That’s where annuities come in.
What Is an Annuity?
An annuity is a financial product, typically issued by an insurance company, that provides guaranteed income in exchange for a lump sum or series of payments.
Think of it like creating your own personal pension.
You contribute money to an annuity, and in return, the insurance company agrees to pay you regular income — often for life. This can significantly reduce your anxiety about running out of money.
There are several types of annuities, but the ones most relevant for retirement income include:
- Immediate annuities: Start paying you right away (within a year of purchase).
- Deferred income annuities: Begin income payments at a future date you choose.
- Fixed indexed annuities: Provide growth potential linked to a market index with protection from loss, and can include income riders for lifetime income.
Why Annuities Work for Longevity Protection
Annuities can solve a unique problem: you don’t know how long you’ll live. If you try to “guesstimate” your lifespan and underspend, you miss out on enjoying retirement. Overspend, and you risk running out of money in your 80s or 90s.
Annuities remove the guesswork.
Here’s why they work so well:
✅ Lifetime Income
Once annuity payments begin, they can continue for the rest of your life — no matter how long you live. This provides peace of mind and stability.
✅ Protection from Market Losses
Some annuities offer downside protection or guarantees, which means your income won’t drop even if the stock market does.
✅ Automatic Income Stream
You don’t have to worry about when or how much to withdraw. Annuity payments arrive monthly, just like a paycheck.
Matching Your Essential Expenses With Guaranteed Income
One of the most powerful retirement income strategies is to match your essential expenses with guaranteed income sources, including:
- Social Security
- Pensions (if available)
- Annuities
This approach is often called the “flooring strategy.”
Here’s how it works:
- Determine your monthly fixed expenses (housing, food, healthcare, transportation, etc.)
- Add up your guaranteed income (Social Security + pensions)
- If there’s a gap, consider using an annuity to fill it
By ensuring that your basic lifestyle is covered with guaranteed income, you free up your other assets for discretionary spending, investing, or emergencies.
How Much of Your Nest Egg Should Go Toward an Annuity?
There’s no one-size-fits-all answer, but many financial experts suggest that allocating 20% to 40% of your retirement savings toward annuities can provide a solid foundation of security.
The ideal amount depends on:
- Your essential monthly expenses
- Other sources of income
- Your risk tolerance
- Your desire for guaranteed income vs. growth
Some people choose to annuitize only a portion of their portfolio, while others prefer to create a “retirement income floor” that covers all non-negotiable expenses.
Annuity Myths vs. Facts
Before we go further, let’s debunk a few common myths that often keep people from considering annuities.
❌ Myth: Annuities are too expensive.
✅ Fact: While some annuities come with fees, many fixed and immediate annuities have little to no ongoing costs. It depends on the type of annuity and the features you choose.
❌ Myth: If I die early, the insurance company keeps my money.
✅ Fact: Many annuities offer guaranteed periods or refund options that ensure your beneficiaries receive what’s left if you pass away prematurely.
❌ Myth: I’ll lose control of my money.
✅ Fact: Some annuities allow partial withdrawals, access to principal, and other flexible features. Again, it’s all about choosing the right product for your needs.
The Emotional Benefit: Peace of Mind
It’s not just about the numbers.
Retirees with guaranteed income streams report higher levels of happiness and lower levels of financial stress. They spend more freely, feel more secure, and enjoy their retirement more fully.
When you know your basic needs are covered, you’re free to use the rest of your assets however you want — whether that’s traveling, gifting to family, or simply sleeping better at night.
Final Thoughts: Turn Uncertainty Into Security
You’ve spent decades building your nest egg — but now the challenge is making sure it lasts. Annuities provide a reliable, guaranteed income stream that protects against the biggest threat retirees face: outliving their money.
When combined with a thoughtful withdrawal strategy and a realistic retirement budget, annuities can offer a powerful antidote to financial uncertainty.
Want to explore how annuities can help you create a lifetime income plan?
Let’s talk. Whether you’re planning for retirement or already there, we can help you design a strategy that provides income, security, and peace of mind for the years ahead. You can have a no-cost, no-obligation call with one of our approved Academy Partners HERE.