Here's a number that surprises most people I work with: the gap between what they need each month in retirement and what they have coming in from reliable sources.
I call it the "income gap." And until you know yours, it's hard to make a confident plan.
How it works
Let's say you and your spouse need about $6,500/month to maintain your current lifestyle — housing, food, healthcare, a little travel, the basics. That's $78,000 a year.
Now, add up your reliable income sources:
- Social Security: ~$2,800/month
- Any pension: $0 (most people)
- Other fixed income: varies
If Social Security is your only reliable source, you've got a $3,700/month gap. That's $44,400 a year you need to pull from somewhere.
Where does the gap money come from?
Most people default to withdrawing from their portfolio. And that works — for a while. But it introduces a risk most people don't think about: what happens if the market drops 25% in your first year of retirement?
That early loss, combined with ongoing withdrawals, can permanently reduce your portfolio's longevity. This is called sequence-of-returns risk, and it's one of the biggest threats to a retirement income plan.
An alternative approach
What if you could cover some or all of that income gap with a source that isn't dependent on market performance?
That's the role an income annuity can play. You allocate a portion of your savings to an annuity, and it converts that lump sum into monthly income — potentially for the rest of your life. The remaining portfolio stays flexible for growth, emergencies, and legacy goals.
The exercise
Take 5 minutes and do this math for yourself:
- What do you need each month? (Be honest. Include healthcare.)
- What reliable income do you have? (Social Security, pension, rental income)
- What's the gap?
That gap number is the most important number in your retirement plan. And once you know it, the conversation about solutions gets much clearer.
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Indexed Annuity Secrets walks through all of this in plain English — the 0% floor, surrender periods, the questions to ask before you sign anything.
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Author of Indexed Annuity Secrets and founder of Pacific Ridgeway Insurance Solutions in San Diego. Navy veteran. Licensed financial professional, CA #4132743.
Fixed indexed annuities are insurance products, not investments. Guarantees are backed by the financial strength and claims-paying ability of the issuing insurance company. This article is for educational purposes only and is not financial, investment, tax, or insurance advice.