Should You Annuitize? When Guaranteed Income Makes Sense (And When It Doesn’t)

Folks, “annuitize” is one of those words that sounds more complicated than it actually is. All it means is converting a lump sum of money into a guaranteed stream of income for the rest of your life — essentially handing the insurance company your principal in exchange for a check that shows up every month, no matter how long you live or what the market does.

This is genuinely one of the more polarizing topics in retirement planning. Some financial writers argue nearly every retiree should annuitize a portion of their savings. Others treat the idea like giving away your money. As with most things we talk about on this blog, the truth sits somewhere in the middle, and the right answer depends entirely on your specific situation. Let’s walk through it.

What Annuitizing Actually Means

When you annuitize, you’re typically buying what’s called a Single Premium Immediate Annuity, or SPIA — although you can also annuitize an existing deferred annuity you already own. You hand over a lump sum, and in exchange, the insurance company is legally obligated to pay you a set amount every month for the rest of your life, or for as long as you and your spouse are alive, depending on the payout option you choose.¹

To give you a sense of the actual numbers: as of mid-2026, a 65-year-old man putting $100,000 into a SPIA could expect somewhere around $625 to $680 per month for life, with a woman the same age receiving slightly less because of longer average life expectancy.² A joint-life option covering both spouses pays somewhat less than a single-life option, since the insurance company expects to be paying out for a longer combined period.³

Here’s an analogy that helps: think of annuitizing like planting a tree that produces fruit every single month for the rest of your life, no matter the weather. You give up the ability to dig the tree back up and sell it — that’s gone, once it’s planted — but in exchange, you never have to worry about the harvest running out, even if you live to 100.

When Annuitizing Makes Sense

You’re worried about outliving your money. This is the single biggest argument in favor of annuitizing a portion of your savings. An annuity is really insurance against longevity risk — the risk of living longer than your portfolio can support. If your family has a history of long lifespans, or you’re simply worried about running out of money in your 90s, converting a portion of savings into guaranteed lifetime income removes that specific worry entirely.

You want to cover essential expenses with guaranteed income. In the Retirement Income Generator approach we use with clients, the goal is to layer guaranteed income sources — Social Security, a pension if you have one, and sometimes an annuitized amount — so that your essential monthly expenses (housing, food, healthcare, utilities) are covered no matter what happens in the market. That takes an enormous amount of stress off the table.

You don’t have a pension, and Social Security alone won’t cover your basics. Manufacturing employees who worked at companies with traditional pensions have a built-in guaranteed income floor. If you don’t have that — say, you worked mostly in roles with 401(k)s rather than pensions — annuitizing a portion of savings can effectively create a private pension for yourself.

You’re comfortable giving up access to that specific chunk of money. This one matters. Annuitized money is generally gone — you can’t get the lump sum back, though a small number of contracts offer limited liquidity riders.⁴ If you’re at peace with that trade-off for a defined portion of your savings, annuitizing can make sense.

When Annuitizing Does Not Make Sense

You need liquidity and flexibility. If a large portion of your retirement savings needs to remain accessible for unpredictable expenses — home repairs, medical costs, helping a family member — locking a big chunk of it into an irrevocable income stream isn’t the right move. This is different from a deferred annuity with a free withdrawal provision, which we’ve covered in a separate piece; a fully annuitized SPIA generally offers no such access.

You have significant health concerns that shorten your expected lifespan. Annuities are priced on average life expectancy. If your health history suggests a shorter timeline, you may not live long enough to “get your money’s worth” from a life-only annuity, and other strategies might make more sense for your family.

You want to leave a large inheritance. With a life-only annuitization, once you pass away, the payments generally stop — there’s no remaining balance to leave to your children. Certain period-certain or cash-refund options can address this, but they typically reduce the monthly payout.⁵ If leaving a substantial legacy is a top priority, over-annuitizing can work against that goal.

You already have plenty of guaranteed income. If your pension and Social Security already comfortably cover your essential expenses, adding more annuitized income may not add meaningful value — that money might be better used for growth, flexibility, or legacy planning instead.

A Hypothetical Example: Walter and Nancy from Simpsonville

Let’s imagine Walter, 67, retired without a company pension, and his wife Nancy, 65. Between them, Social Security provides about $3,600 per month. Their essential monthly expenses — including housing, healthcare premiums, and groceries — run closer to $4,800 per month, leaving a $1,200 monthly gap.

In a hypothetical version of this situation, we might look at annuitizing a portion of their savings — say, $200,000 — using a joint-life SPIA to close that essential income gap with guaranteed money, while leaving the remainder of their $700,000 portfolio invested for growth, inflation protection, and flexibility. That way, the “must-have” expenses are covered by contractual income, and the rest of the portfolio is free to work toward lifestyle spending, unexpected costs, and eventually, what they leave behind.

This is a hypothetical illustration only, built for demonstration purposes. Every client’s numbers, health situation, and goals are different, and the right allocation requires an individualized analysis.

The Middle Ground: Partial Annuitization

You don’t have to choose between “annuitize everything” or “annuitize nothing.” Most of the clients we work with land somewhere in the middle — annuitizing a specific, calculated portion of savings sufficient to close an income gap, while keeping the rest invested and liquid. This approach captures the best of both worlds: guaranteed coverage for your non-negotiable expenses, and flexibility for everything else.

Questions to Bring to the Conversation

1. What’s the specific dollar gap between my guaranteed income and my essential monthly expenses?

2. What payout option fits my family situation — single life, joint life, or a period-certain option?

3. How does annuitizing a portion of my savings affect what I can leave to my children?

4. Am I comfortable permanently giving up access to this specific amount of money?

5. How does this fit alongside my Social Security claiming strategy and any pension I have?

How This Fits the Common Sense Retirement Roadmap

Annuitization decisions never happen in a vacuum — they’re one lever among the five pillars we build into every plan:

• Income Planning — Closing the specific gap between guaranteed income and essential expenses

• Investment Strategy — Keeping the remaining portfolio properly allocated for growth and flexibility

• Tax Optimization — Structuring the annuity purchase and payout timing to minimize unnecessary tax impact

• Healthcare & Asset Protection — Making sure enough liquidity remains outside the annuity for medical needs

• Legacy Planning — Balancing guaranteed income today against what you hope to leave behind

Let’s Talk Through Your Numbers

The decision to annuitize isn’t about whether annuities are “good” or “bad” — it’s about whether converting a specific portion of your savings into guaranteed lifetime income solves a real problem in your retirement plan. That’s a personal calculation, and it deserves a real conversation, not a generic answer.

We’d love to sit down and run the actual numbers for your situation. We have offices in Greenville, Spartanburg, and Anderson, convenient for folks coming from Travelers Rest, Clemson, or anywhere across the Upstate. Visit getmyroadmap.com or call (864) 235-2790 to schedule your complimentary consultation, and let’s figure out together whether — and how much — annuitizing makes sense for you.

References

1. Annuity.org, “How Much Does a $100,000 Annuity Pay Per Month?” April 2026.

2. SafeMoney.com, “How Much Does a $100,000 Annuity Pay Per Month? [2026 Rates],” citing ImmediateAnnuities.com survey, August 2026.

3. Annuity.org, “How Much Does a $100,000 Annuity Pay Per Month?” April 2026.

4. AnnuityJournal.org, “What Is a SPIA? Single Premium Immediate Annuity Guide,” April 2026.

5. Annuity.org, “How Much Does a $100,000 Annuity Pay Per Month?” April 2026.

Securities and advisory services offered only by duly registered individuals through Madison Avenue Securities LLC, member FINRA/SIPC and a Registered Investment Advisor. MAS and Phillip Allen Inc. or Common Sense Retirement Planning are not affiliated entities. Artificial Intelligence was used to create this content. The information and opinions contained herein provided by third parties have been obtained from sources believed to be reliable, but accuracy and completeness cannot be guaranteed by Common Sense Retirement Planning.

A Roth IRA conversion is a taxable event. Our Firm does not offer legal or tax advice. Consult with your legal or tax advisor regarding your situation.

Investing involves risk, including the potential loss of principal. Any references to protection, safety or lifetime income, generally refer to fixed insurance products, never securities or investments.

The examples above are hypothetical in nature and intended for illustrative purposes only. Your results will vary. Past performance does not ensure future performance or results.

‍