Hey, Stan The Annuity Man here. Americas annuity agent. Yes, licensed in all 50 states. I want to help people all over the country understand annuities before they buy one. If we get to that point, we can help you with that at The Annuity Man. The question you want to know is how much of your portfolio should be made up of annuities. That’s a great question. No perfect answers. And if anyones given you a percentage, they have no clue what theyre talking about. Now thats the short answer. What I would like for you to do is hang in there with me because Im going to dig into how this all got started, how people start talking about percentages of your portfolio, and Im also going to talk about what the annuity companies actually think about that and the laws in place to protect you, the customer, the client. So, hang in there.
âAll right, so the question is, whats the percentage of annuities you need in a portfolio? Now, it could be zero, right? You might not need an annuity, and you say, “Well, wait a minute, Stan, you sell annuities. Youre the guy out here. Youre Americas annuity agent”. Thats all true, but Im also conscious of the fact that annuities are contracts, theyre transfer risk products, and theres a lot of you out there that dont even need to transfer risk.
Ever sat across from a financial advisor who confidently declared, “You need exactly 30% of your portfolio in annuities”? I’ve heard these cookie-cutter recommendations too many times, and honestly they drive me crazy. The truth about annuity allocation isn’t simple one-size-fits-all math – it’s much more nuanced.
As someone who’s spent years helping folks figure out their retirement strategies, I can tell you with absolute certainty: there is no magic percentage that works for everyone. Anyone who gives you a fixed number without understanding your specific situation is selling you short.
Let’s dive into what actually matters when determining how much of your portfolio should be in annuities – no sales pitches, just straight facts.
The Short Answer: It Depends (And Could Be Zero)
The quick answer to what percentage of your portfolio should be in annuities? It could be anywhere from 0% to 50% – and sometimes even higher for certain individuals
Yes, you read that right. 0% could be the right answer for you. Unfortunately, not everyone needs annuities, and the industry itself usually limits suggestions to about 80% of investable assets.
How to Determine If You Need Annuities At All
Before discussing percentages, let’s figure out if you even need annuities in the first place Ask yourself these two critical questions
- What do you want your money to contractually do?
- When do you want those contractual guarantees to start?
If you can’t clearly answer these questions, you might not need an annuity at all.
Another approach is what Stan Haithcock calls the “PILL” test:
- P – Principal protection
- I – Income for life
- L – Legacy
- L – Long-term care
If you don’t need solutions for at least one of these areas, an annuity probably isn’t necessary for your portfolio.
Why the Annuity Industry Caps at 50%
Most annuity companies don’t like it when their clients put more than about 20% of their investable assets into annuities, which is an interesting fact. It’s not just a suggestion; it’s often a hard rule built into how they accept applications.
Here’s a real example from Stan Haithcock’s experience:
A client with $150,000 in total investable assets wanted to put all of it into an Immediate Annuity for lifetime income. Despite this making logical sense for her situation, the annuity company would only accept an application for $75,000 (50% of her assets).
This rule was made because of lawsuits from people who sued carriers after putting all their money into annuities and then needing cash. There are now rules in place to protect both consumers and businesses.
Factors That Should Shape Your Decision
Do not just randomly follow rules like investing 20% of your money in stocks if you are 60 years old. Instead, think about these things when deciding how to divide your annuity:
1. Your Age
Your current age and when you plan to start drawing income significantly impact your annuity strategy:
- Younger investors may benefit from deferred annuities that grow over time
- Near-retirement investors might need immediate income solutions
- Older investors typically receive higher payments due to shorter life expectancy
2. Your Savings Amount
The size of your portfolio matters tremendously:
- Smaller portfolios ($50K-$200K) may need more careful allocation to ensure adequate income
- Larger portfolios have more flexibility in how much to allocate to guaranteed income
3. Your Risk Tolerance
Be honest about how market fluctuations affect your sleep at night:
- Risk-averse investors might allocate more to annuities (30-50%)
- Risk-tolerant investors might use annuities strategically (10-30%) for their guaranteed portion
4. Your Retirement Income Needs
Calculate your fixed expenses versus discretionary spending:
- Some advisors recommend covering all essential expenses with guaranteed income (Social Security + annuities)
- This approach creates a “floor” of security while allowing other investments to grow
Smart Strategies For Annuity Allocation
Instead of rigid percentages, consider these approaches:
The Income Floor Strategy
- Calculate your essential monthly expenses (housing, food, healthcare, utilities)
- Subtract your Social Security and pension income
- Use annuities to fill the remaining “income gap”
- Keep the rest of your portfolio in more liquid/growth-oriented investments
This approach ensures your basic needs are always met, regardless of market performance.
The Bucketing Strategy
Divide your portfolio into time-based “buckets”:
- Bucket 1: Cash for immediate needs (0-2 years)
- Bucket 2: Fixed income including annuities for mid-term needs (3-10 years)
- Bucket 3: Growth investments for long-term needs (10+ years)
The Annuity Ladder Strategy
Instead of one large annuity purchase, create a ladder of smaller purchases over time:
- Buy annuities in stages (every 3-5 years)
- This allows you to:
- Adapt to changing interest rates
- Adjust based on evolving health/longevity expectations
- Maintain flexibility with the remainder of your portfolio
What Financial Experts Actually Recommend
While there’s no consensus percentage, here are some general guidelines from financial advisors:
-
Traditional allocation models often suggest replacing the bond portion of your portfolio (40-60% for retirees) with annuities for more income certainty
-
Income-focused advisors frequently recommend covering 70-100% of essential expenses with guaranteed income sources (including annuities)
-
Conservative allocation might be 20-30% in annuities for moderate risk tolerance
-
More aggressive allocation might be 10-15% in annuities just to provide a safety net
Common Pitfalls to Avoid
When determining your annuity allocation, watch out for these mistakes:
1. One-Size-Fits-All Thinking
Any advisor who gives you a specific percentage without thorough analysis of your situation is doing you a disservice.
2. Putting All Your Money in Annuities
Even if you love the security of annuities, remember that:
- You need liquidity for emergencies
- Inflation can erode fixed payments
- Annuity companies have limits anyway (usually 50%)
3. Ignoring Tax Considerations
Different annuities have different tax treatments:
- Qualified annuities (purchased with pre-tax money)
- Non-qualified annuities (purchased with after-tax money)
Your overall tax situation should influence your allocation.
Real-Life Example: Finding the Right Balance
Let’s look at how this might work in practice:
Sarah and Tom, both 65:
- $800,000 in retirement savings
- $3,000/month in Social Security benefits
- $4,500/month in essential expenses
- $1,500/month income gap
Their Strategy:
- Purchase a $300,000 SPIA (Single Premium Immediate Annuity) to generate $1,500/month guaranteed income
- Keep $100,000 in cash/short-term investments for emergencies
- Invest remaining $400,000 in diversified portfolio for growth and discretionary spending
This puts their annuity allocation at 37.5% – but that percentage is based on their specific needs, not a random rule.
The perfect percentage of annuities for your portfolio is based on your unique circumstances – not some arbitrary rule. Anyone who gives you a specific percentage without analyzing your situation is selling you short.
Here’s my advice:
- Start by determining if you even need an annuity
- Calculate your income needs and gaps
- Consider your risk tolerance honestly
- Work with an advisor who asks questions rather than prescribing percentages
- Remember that annuity companies typically won’t let you allocate more than 50% anyway
Your retirement security is too important for cookie-cutter solutions. Take the time to find the right allocation for YOUR situation – even if that means 0% in annuities.
Want to learn more? Check out resources like Stan Haithcock’s video “What Is the Purpose of an Annuity?” or consider booking a consultation with a fiduciary advisor who can provide personalized guidance.
Remember – it’s your retirement, your money, and ultimately, your decision.
What percentage of your portfolio is currently in annuities? I’d love to hear your thoughts in the comments!
âDo You Need an Annuity?
âHow do I determine that with my clients? Two very simple questions. The first one is, what do you want the money to contractually do? The keyword is contractual. Then, when do you want those contractual guarantees to begin? Answer those questions, either write them down or remember them.
âThe other thing that I tell people is theres an acronym called PILL. P stands for Principal protection. I stands for Income for life. L stands for Legacy. And the other L stands for Long-term care. You don’t need an annuity if you don’t need to protect your principal, get income for life, or pay for long-term care after you die. If you dont need to transfer the rest, you dont need an annuity. So, the answer is then zero.
âHeres how this all started. Before the Stan The Annuity man juggernaut was out there. I was in the securities industry. Some of the big companies I’ve worked for are ones you may have heard of. I’m not going to name them because they’re already well-known, don’t need ads, and aren’t paying me to do so. But they would say stuff like, “If youre 60 years old, you need 60% in equities and 40% in bonds”. I mean it was the old nap, they called it the napkin presentation where you just drew it out on a napkin. Im not kidding. Or theyd flip it. Theyd say, “You need 40% in equities and 60% in bonds”. I know youre saying, “Wait a minute, that sounds so simplistic. ” It really was that simplistic. And theres a lot of old school guys out there in the securities industry, planners, fee planners, etc. , that still kind of use that basic premise on how to allocate stocks and bonds, etc.
âThe Annuity Industry Pie Chart
âSo, lets look at how the annuity companies look at the pie chart and what they approve of. What do the annuity companies think about the old pie chart and the percentage of your portfolio? There are rules in place to protect you, the client, and to make sure that the agent or the advisor out there is not just putting all of Grandmas money into an annuity. That doesnt need to happen, and there are guardrails in place.
âThe annuity industry feels comfortable with around a maximum of 50% of your investible assets in annuities. Seriously, thats what they say. Ill give you a great story on that. It just happened to me last week.
âA lady calls me, she literally watched one of my YouTube videos, calls me and says, “I think I need an Immediate Annuity for a lifetime income stream.” And I said, “Fine, lets run the quote. Give me a little bit of background about what you have. What are your investible assets?” She was not working. She rented an apartment, which is fine. She had $150,000 to her name, period. She had no debt, and she wanted to put all $150,000 into an Immediate Annuity. Now, on the surface, that makes sense because she needed income; she needed a lifetime income stream. She had no beneficiaries, perfect. But I told her, “Unfortunately, the annuity industry is not going to allow that. Theyre not going to allow you to put all your money in”. So, in essence, of her $150,000, we could only run a quote for $75,000. She was not happy. Shes like, “Well, Ill just buy it from someone else.”
âIm like, “Thats fine. But the only way that applications going to go through is if someone fictitiously fills in your application to reflect the $150,000 being half of what your investible assets”. They do this for a reason. Over a decade ago, there were many lawsuits from consumers who put all their money into annuities, and they sued the carriers for allowing them to do that. There wasnt anything wrong with the annuities; they were in Fixed Annuities, but there were lots of lawsuits. And then the actual industry said, “Okay, enough of that, were going to put some guardrails in place to make sure that people have enough liquidity, enough cash on hand, in case things happen.” So, thats a great example of why the annuity companies put that in place. And if you went to the annuity company and you said, okay, and your agent didnt know that rule or advisor, and they put 75% of your investible assets into annuities, and that application got to the carrier, regardless of who the carrier is, theyre going to spit that back out. Theyre not going to approve it. And thats a good thing the annuity industry is doing. They are trying to protect the client out there.
What Percentage Of Your Portfolio Should Be In Annuities?
FAQ
What is a good portfolio mix for a 60 year old?
A good portfolio for a 60-year-old should include low-risk asset classes. The portfolio should be divided into two parts: (1) Sensible, safe investments (bonds, CDs, money market); and (2) riskier investments (stock, real estate, small business, etc. ).
What percentage of financial advisors recommend annuities?
Although 27% of their clients own at least one annuity, financial professionals across all distribution channels (broker dealer, wirehouse and registered investment advisor) say they would prefer 38% have one or more annuities in their portfolio – but are deterred from reaching this goal by a number of obstacles.
What is the 4% rule for annuities?
The 4% rule for annuities refers to a way to evaluate whether an annuity’s guaranteed income stream is equal to — or better than — what you might safely withdraw from a traditional portfolio using the 4% rule. For example, if you have $500,000 saved and you follow the 4% rule, you’d withdraw $20,000 in the first year.
How much does a $100,000 annuity pay per month after?
… 2025, with a $100,000 annuity, you’ll get an immediate payment of $600 per month starting at age 60, $660 per month at age 65, or $713 per month at age 70.
Should you invest in fixed annuities?
Some experts in investments and annuities recommend making your portfolio 50 percent annuities to provide safety in volatile markets. For investors with higher risk tolerances, the security of fixed annuities can free them to invest more aggressively with the other half of their portfolios.
How much money do you need to buy an annuity?
You can buy an annuity for a minimum of $10,000, but to gain a significant amount of retirement income from annuities, you will need to invest more (e. g. $50K, $100K, $200K, $500K, etc. ).
Should you invest in an annuity?
You won’t have to worry about bear markets and crashes if annuities from trusted insurers such as Sun Life Assurance, Canada Life, RBC Insurance, Desjardins, or Bank of Montreal are part of your investment portfolio. Adding an annuity to your investment portfolio will add safety and certainty to your retirement planning.
What percentage of pension should be used to buy annuity?
While the minimum percentage of the pension amount to be used for the purchase of the Annuity in the case of Superannuation is 40%, pre-mature exits from NPS require at 80% of the pension wealth to be used for purchasing an annuity from the ASPs. Which is preferable, PPF or NPS? The Indian government offers the market-linked NPS pension plan.
Can annuities be used instead of bonds?
However, investors can use annuities in place of bonds to have even more certainty. Some experts on investments and annuities say that if you want to be safe in volatile markets, you should have 50% of your portfolio in annuities.
Should annuities be included in a 401(k)?
Annuities provide a recurring revenue stream in retirement, offering security and peace of mind. Thanks in part to the SECURE Act 2. 0, which allows annuities to be included in 401 (k)s, this investment vehicle has gained popularity among savers.