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I Want a Second Opinion. Is 50% in Annuities Too Much?

Financial advisor and columnist Brandon Renfro

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My advisor is recommending putting over 50% of my portfolio in annuities. What say you?

– Georgia

As with most personal finance decisions, a lot hinges on the specific details of your situation. Fifty percent would likely be on the high side for most people, but that doesn’t mean it can’t be the right amount for you. Some may even want or need a larger portion of their portfolio in an annuity.

Let’s talk about the reasons you may want to put that much into an annuity, and the reasons someone may not want to. Compare these items to your own situation, goals and preferences and decide if 50% is the right amount.

Consider using this free tool to match with a financial advisor if you are interested in getting custom advice based on your circumstances and goals.

A woman and her husband are relieved to know their annuity payments cover their living expenses.
A woman and her husband are relieved to know their annuity payments cover their living expenses.

Guaranteed income is the fundamental reason to buy an annuity. While there are many types of annuities, an immediate annuity is the simplest and most straightforward variation. With a lifetime immediate annuity, you exchange a lump sum of money for a series of regular monthly payments. Much like a pension or Social Security benefits, lifetime immediate annuity payments last for the rest of your life.

With that in mind, let’s go over some of the main benefits of buying an annuity. The more these benefits appeal to you and make sense within the context of your financial plan, the larger your allocation toward an annuity may be.

When you receive income from an annuity, you don’t have to worry about outliving your savings, which is a significant concern for many retirees.

When considering how much of your portfolio you want to allocate to an annuity, think specifically about how much guaranteed income you need to cover your living expenses. This is known as an income floor. That way, if the market is poor and your investments don’t perform well, you can rely on that income floor to get you through.

However, if your Social Security benefits and/or pension payments already provide enough income to cover your living expenses, more guaranteed income may not be necessary. (But if you need an expert to assess your retirement income plan more closely, consider matching with a fiduciary advisor.)

A fixed annuity, meanwhile, pays a guaranteed interest rate regardless of how the stock market performs. Once your payments begin, they aren’t subject to the volatility of market fluctuations in the way that stocks, bonds, mutual funds and ETFs are.


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