How Much Money Do You Really Need in Retirement?

$1 million in savings sounds like a lot, until you realize it might only provide $40,000 a year in income under the traditional 4% rule. With people living longer and costs continuing to rise, that guideline isn’t always enough.

In this episode of the Conquering Retirement podcast, the Annuity FYI team discussed what today’s retirees really need to consider and how strategies like annuities can help close the gap.

The 4% Rule

The traditional guideline for retirement income has been the “4% rule.” It suggests that retirees can withdraw 4% of their portfolio each year, adjusted for inflation, and reasonably expect their money to last for 25 to 30 years.

• $1 million in savings = $40,000 per year (pre-tax).
• This assumes a balanced portfolio and average market performance.

However, there’s a caveat: people are living longer, healthcare expenses are rising, and market volatility can make that 4% less reliable than it once was.

The Problem of Sequence of Returns

The “average” return of a portfolio doesn’t always tell the whole story. What matters most is the sequence of returns, the order in which good and bad years happen.

• If markets decline early in retirement, you could deplete your savings too quickly.
• Even if the long-term average appears favorable, initiating withdrawals during a down market increases the risk of depleting one’s funds.

Clearly, having part of your income guaranteed, outside of market fluctuations, is critical.

Annuities as a Solution

Annuities can help retirees move beyond the limitations of the 4% rule.

• Higher guaranteed payouts: Today, certain fixed-indexed annuities can provide 8–10% guaranteed lifetime income, depending on age.
• Gender-neutral: Many of these products offer equal pay for men and women, benefiting women who statistically live longer.
• Flexibility: Excess income can be reinvested, helping offset inflation and build future growth.

Example: Investing $100,000 at age 50 in a fixed annuity with income starting at 60 could generate approximately $15,000 annually for life, representing an effective 7% return if you live to age 90.

Other Key Factors in Retirement Income

While annuities and investments form the foundation, lifestyle choices also make a big difference:

• Home ownership: Retirees who own their homes outright often need significantly less monthly income than those still renting.
• Debt: Car loans, credit cards, or lingering mortgages increase required income.
• Lifestyle: Travel, hobbies, and healthcare costs vary widely from person to person. Planning around what your retirement looks like is just as important as planning the numbers.
  

Final Thoughts

The 4% rule may be a starting point, but it’s no longer a one-size-fits-all solution. Longer lifespans, inflation, and market risks all require a more flexible approach.

Integrating annuities with traditional investments can provide a guaranteed income, help offset longevity risk, and give retirees the confidence to enjoy their lifestyle without worrying about outliving their money.

Sources

• Bengen, William. Determining Withdrawal Rates Using Historical Data – Journal of Financial Planning (origin of the 4% rule)
• Morningstar – How Retirees Can Determine a Safe Withdrawal Rate (2025)
• Vanguard – Safeguarding Retirement in a Bear Market (PDF)
• CNBC – Why the 4% Rule May No Longer Work
• Investopedia – Indexed Annuity