This is a real scenario — anonymized and simplified — based on situations I see regularly. Let me introduce you to "Tom."
Tom's situation
Tom is 67. Retired two years ago. He and his wife have about $850,000 in retirement accounts, a paid-off house, and Social Security covering about $3,200/month between the two of them.
On paper, Tom looks great. He did the right things — saved consistently, stayed disciplined, avoided major mistakes.
But here's what keeps Tom up at night:
"What if I live to 95? What if my wife lives to 98? Is there enough?"
Tom's financial advisor told him to follow the 4% rule — withdraw $34,000 a year from his portfolio. Combined with Social Security, that gives him about $72,400/year. Comfortable enough.
But the 4% rule assumes
- The market cooperates (it doesn't always)
- Inflation stays manageable (it hasn't lately)
- No major surprise expenses (healthcare costs tend to surprise people)
- You don't live "too long" (a strange thing to worry about, but it's real)
What Tom explored
Tom moved $250,000 into a deferred income annuity. Starting at age 72, that annuity is designed to provide roughly $1,800/month (illustrative — actual amounts depend on age, product, carrier, and prevailing rates) for the rest of his life — and his wife's life, if she outlives him.
That means Tom's "floor" — the income he can likely count on regardless of market conditions — went from $3,200/month (just Social Security) to about $5,000/month. The remaining $600,000 stays in his portfolio for growth, emergencies, and legacy goals.
Tom still has market exposure. He still has flexibility. But now a larger portion of his basic expenses could be covered by predictable income sources that aren't dependent on what the market does next week (subject to the claims-paying ability of the issuing carrier).
The takeaway
Tom didn't "need" an annuity in the way that someone drowning needs a life raft. He used it as a strategic tool to reduce one specific risk: the possibility of outliving his income.
Not everyone is a Tom. But if you've ever thought, "I think I'm okay, but what if...?" — Tom's story might resonate.
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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.