By Brent Matthew
So, you’ve saved $500,000 for retirement—congratulations, that’s quite an achievement! But have you been as diligent about researching investment options as you have been saving for retirement? Yes, saving your money is important, but for many of my clients, annuities and investment portfolios are the two main generators of retirement income.
But between annuity vs. investment portfolio income, which wins out?
The answer depends on your situation. In this article, we take a hypothetical $500,000 investment and see what it generates in an annuity vs. investment portfolio.
Option 1: Single Premium Immediate Annuity (SPIA)
Many people who invest in annuities for retirement income start with a single premium immediate annuity. Here is how an SPIA works with a $500,000 investment:
- You give the insurance company $500,000 up front in exchange for guaranteed lifetime payments.
- You start getting payments immediately.
- The payments continue no matter how long you live.
Here is an estimate of how much you could reasonably expect to receive per month (after a $500,000 investment), depending on your situation:
- Single Person Aged 65: ~$2,900 to $3,100/month ($34,800 to $37,200/year)
- Single Person Aged 70: ~$3,400 to $3,600/month ($40,800 to $43,200/year)
- Married Couple Aged 65: ~$2,500 to $2,700/month ($30,000 to $32,400/year)
A single 70-year-old would receive more per month than a single 65-year-old because their life expectancy is shorter. Married couples receive lower payments because the annuity covers both lifespans.
Payout amounts are illustrative and can vary by insurer, state, age, gender (where applicable), interest rates at purchase, and payout options (e.g., single life vs. joint life, period-certain, refund features). Requesting personalized quotes is the best way to estimate income.
Option 2: Investment Portfolio (4% Withdrawal Rate)
In an economy where it seems like there is no end to market volatility, guaranteed income might sound great. However, before making any investment decisions, it’s important to compare annuity vs. investment portfolio income.
Suppose you invest your $500,000 in a diversified portfolio with an average return of 6 to 7%. You maintain a safe withdrawal rate of 4%. In year one, your income would be 4% of $500,000, or $1,667/month ($20,000/year).
Unlike annuities, investment portfolios don’t offer guaranteed income. In a best-case scenario where the market performs well (8% returns), you can expect the following:
- By year 15, your portfolio expands to over $700,000.
- Your income increases to $28,000/year.
- You have money to leave to heirs.
To make an informed decision on annuity vs. investment portfolio, you should consider the worst-case scenario (a market crash early in retirement):
- After a major downturn, your portfolio drops to $350,000.
- You reduce annual withdrawals to $14,000.
- If the market doesn’t rebound in time, you could deplete the account.
If you go this route, active portfolio management is essential!
The return and withdrawal examples assume hypothetical market performance and do not reflect any specific investment. The 4% withdrawal rate is not a guarantee and may not be appropriate for every retiree, especially during periods of prolonged volatility or inflation.
Option 3: Hybrid Approach (Split Strategy)
When it comes to the question of annuity vs. investment portfolio income, the good news is that you don’t have to choose one or the other. You can invest in an annuity with some of your savings and put some into an investment portfolio.
I call this the “floor and upside” strategy. By putting some of your funds into an annuity, you establish a “floor” or retirement earnings baseline. By investing some into your portfolio, you’re taking advantage of a growth opportunity without putting everything on the line.
If you’re considering this approach, we can help you decide how much to put into your annuity vs. investment portfolio.
Thinking About Annuity vs. Investment Portfolio Income?
At Scottsdale Wealth Advisory, we understand that no two clients are the same. One person might read about annuity vs. investment portfolio income and decide that one is clearly a better choice. Another person might want to diversify and take a hybrid approach.
Our team is here to support you as you work to bring your retirement vision to life. If you want to learn more about annuity vs. investment portfolio income, contact us today. To schedule your complimentary financial coaching session, call (480) 247-9090, email info@SWAFirm.com, or book directly at calendly.com/BrentMatthew.
Frequently Asked Questions About Investing in an Annuity or an Investment Portfolio
Is it better to invest $500,000 in an annuity or a portfolio?
It depends on your retirement goals. If you want guaranteed lifetime income and peace and confidence, an annuity might make more sense. If you prefer growth potential and flexibility, with the risk of market losses, an investment portfolio could be a better fit. Many retirees choose to split their funds between both for a balanced approach.
How much income can I get from a $500,000 annuity versus an investment portfolio?
A $500,000 annuity can provide about $2,900 to $3,600 per month depending on your age and marital status. In contrast, a $500,000 investment portfolio using a 4% withdrawal rate might yield about $1,667 per month. However, unlike annuities, portfolio income isn’t guaranteed and can fluctuate based on market performance.
Can I use both an annuity and an investment portfolio in retirement?
Yes, many retirees use a hybrid strategy—putting part of their savings into an annuity for guaranteed income, and the rest into an investment portfolio for potential growth. This “floor and upside” approach helps cover essential expenses while still allowing for upside and legacy potential.
About Brent
Brent Matthew is the founder and CEO of Scottsdale Wealth Advisory, a full-service fiduciary retirement planning firm serving pre-retirees and retirees across Arizona and multiple states. With a strong commitment to always putting clients first, Brent leads the firm in developing comprehensive, tax-efficient financial plans tailored to each family’s unique goals. He is responsible for researching investment, annuity, and life insurance strategies and building smart asset allocations that reflect both long-term growth and risk management.
Brent is driven by a core belief: “The success of this firm will be measured by the success of the families it represents.” That client-first approach has guided his work since the beginning. He is currently enrolled at the College for Financial Planning and is on track to earn his CERTIFIED FINANCIAL PLANNER® designation. He also holds his Series 65 license and Arizona Life and Health Insurance Producers License.
Outside the office, Brent embraces the Arizona outdoors with “lil B” and their two pomskies, Heimo and Kota. Whether he’s hiking, fishing, dirt biking, skiing, golfing, kayaking, or skeet shooting, Brent finds balance and joy in staying active. He’s also a fan of CrossFit, brunching, and cruising the Phoenix canal system on his beach cruiser—usually with classic tunes from the Marshall Tucker Band, Gordon Lightfoot, or Crosby, Stills & Nash playing in the background. To learn more about Brent, connect with him on LinkedIn.
The examples and dollar figures in this article are hypothetical illustrations for educational purposes. They are not quotes or guarantees of future results. Actual annuity payouts, portfolio returns, and sustainable withdrawal amounts vary based on individual circumstances and market conditions. Taxes, investment fees, inflation, required minimum distributions (if applicable), changes in spending needs, and differences in product features are not fully modeled here. These factors can materially change outcomes. Before purchasing any annuity or implementing a withdrawal strategy, review product details, costs, and tradeoffs in the context of your full financial plan.
Advisory services are offered by Scottsdale Wealth Advisory, LLC, an Investment Advisor in the State of Arizona. Insurance products and services are offered through Scottsdale Wealth Advisory, LLC. Scottsdale Wealth Advisory, LLC is not affiliated with or endorsed by the Social Security Administration or any government agency, and is not engaged in the practice of law. Be sure to consult with a licensed financial professional to confirm the accuracy of the insurance product you are considering.
