Most people retire with a number in their head — a 401(k) balance, an IRA, maybe some savings. The plan is to draw from those accounts every month and hope the money lasts.
The problem is that plan has a flaw: it assumes you know how long you will live.
The Risk No One Plans For
Running out of money in retirement is not a hypothetical. It is a real statistical risk. A 65-year-old today has roughly a 50% chance of living past 85. Many will make it to 90 or beyond.
If you retire at 65 with $500,000 and spend $30,000 per year, you run out in about 17 years — at age 82 — before accounting for inflation or healthcare costs.
Social Security helps. But it was never designed to be your only income source.
The Only Things That Pay Forever
There are exactly two financial products that guarantee income for life no matter how long you live:
Pensions — most people do not have one anymore. Private sector pension coverage has dropped dramatically over the past 30 years.
Annuities — the only private financial product that can replicate what a pension does.
Social Security is essentially a government annuity. The reason people value it so much is the same reason income annuities work: you know a check is coming every month, regardless of markets, regardless of how long you live.
How Annuity Income Works
You deposit a lump sum with an insurance company. In return, they contractually promise to pay you income — monthly, quarterly, or annually — for the rest of your life.
The insurance company can make this promise because they pool risk across thousands of policyholders. Some will live to 95. Some will not make it past 75. The math works because they are managing the group, not guessing about any individual.
For you, the result is certainty. A check arrives every month. Even if you live to 100.
A Simple Example
A 70-year-old deposits $200,000 into an income annuity. Depending on the product and structure, this might generate $1,400 to $1,800 per month for life.
At $1,600/month, that is $19,200 per year. Over 20 years — to age 90 — that is $384,000 received on a $200,000 deposit. And if you are still alive in year 21, the checks keep coming.
Two Ways to Structure It
SPIA (Single Premium Immediate Annuity): Income starts immediately — within 12 months of your deposit. Maximum payout per dollar. Best for people who need income now.
FIA with Income Rider: You defer income while your benefit base grows at a guaranteed rate, often 7–8% per year. The longer you wait, the higher your monthly payment. Best for people who want to lock in future income while still working or drawing from other sources.
The Key Difference from a 401(k)
A 401(k) can run out. An income annuity cannot. Once you elect lifetime income from an annuity, the insurance company is contractually obligated to keep paying — even after your account value reaches zero.
That is the guarantee you are buying. And for people who are serious about not outliving their money, it is one of the most valuable guarantees available.
If you want to see what a lifetime income illustration looks like with your numbers, reach out for a free no-obligation consultation.
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Devin Shave is an independent annuity advisor based in Brielle, NJ. Free consultations, no obligation, no pressure.
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