How Big Of An Annuity Do I Need?

Shawn Plummer

CEO, The Annuity Expert

With an ever-shifting economic landscape, the question on many people’s minds is: How big of an annuity do I need? When securing your financial future, annuities can provide a consistent income during retirement. But like any investment, there’s no one-size-fits-all answer. Let’s break down the factors you need to consider.

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How Liquid Assets Impact Annuity Decisions

The $85,000 Benchmark

First, a good rule of thumb is to ensure that your household has at least $85,000 in liquid assets. Liquid assets like savings accounts or stocks can quickly convert to cash without losing value. This serves as a cushion, ensuring that you have flexibility in unforeseen circumstances.

Example: John and Lisa, a retired couple, have a combined liquid asset of $90,000. This provides them with a safety net before delving into annuities.

How Big Of An Annuity Do I Need

Balancing Your Portfolio: No More Than 60%

Annuities are stable, but like any investment, it’s essential not to put all your eggs in one basket. Experts recommend that no more than 60% of your assets be tied up in annuities. This ensures diversification and minimizes risks.

Example: If Sara and Tom have total assets worth $500,000, they should not invest more than $300,000 in annuities.

How Big An Annuity Do I Need

Calculating the Right Annuity Amount

Aim for 90% Income Supplementation

For many, the golden number when considering the annuity size is how much of your monthly income it can replace. Ideally, the annuity should supplement 90% of your monthly income while working for a comfortable retirement.

Example: If Raj used to earn $5,000 a month while working, his annuity should aim to supplement $4,500 monthly.

How Big An Annuity Do You Need

Account for Both Spouses

Remember that ‘household’ often equals both spouses combined. When determining your annuity need, ensure you’re factoring in the financial requirements of both partners.

Example: Emily earned $4,000 monthly, while her husband, Jack, brought in $6,000. Their annuity should aim to provide close to $9,000 per month.

How Big Of An Annuity Do You Need

Next Steps

Answering the question, “How big of an annuity do I need?” requires understanding annuity basics and aligning it with your financial landscape. By ensuring you have a solid, liquid asset foundation, diversifying your investments, and aiming for the correct monthly income replacement, you’re on the path to making a well-informed and beneficial decision. Always remember every individual’s financial situation is unique. What works for one person might not work for another. It’s about finding the balance that ensures a secure and comfortable future for you and your loved ones.

Big Of An Annuity Do You Need

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Frequently Asked Questions

How Do I Determine the Size of Annuity I Need?

The size of the annuity you need will depend on several factors, such as your current age, desired retirement age, life expectancy, risk tolerance, other sources of income, and your financial goals.

What is the Minimum Investment for an Annuity?

The minimum investment for an annuity varies by the insurance company and type of annuity. It can range from a few thousand dollars to tens of thousands of dollars.

Shawn Plummer

CEO, The Annuity Expert

I’m a licensed financial professional focusing on annuities and insurance for more than a decade. My former role was training financial advisors, including for a Fortune Global 500 insurance company. I’ve been featured in Time Magazine, Yahoo! Finance, MSN, SmartAsset, Entrepreneur, Bloomberg, The Simple Dollar, U.S. News and World Report, and Women’s Health Magazine.

The Annuity Expert is an online insurance agency servicing consumers across the United States. My goal is to help you take the guesswork out of retirement planning or find the best insurance coverage at the cheapest rates for you. 

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