You should never put 90% of your assets into annuities.

Going all in on any single financial product is usually a bad idea, and annuities are no exception. Annuities can provide valuable contractual guarantees, but they should be used to solve specific financial goals—not to absorb nearly your entire portfolio.

The correct approach is simple:

Use the least amount of money necessary to contractually solve your goals.

Key Takeaways

• Never put 90% of your investable assets into annuities.
• Annuity allocation should be based on investable assets, not total net worth.
• Your house, vehicles, land, and personal property generally aren't investable assets.
• All annuity types count toward your total annuity allocation.
• Start by identifying the specific contractual goal you're trying to solve.
• Use the least amount of money necessary to accomplish that goal.

Why 90% Is Too Much

Annuities are designed to transfer specific risks to an insurance company.

Depending on the contract, they can provide:

• principal protection
• guaranteed lifetime income
• legacy benefits
• long-term care benefits

That doesn't mean every available dollar should be placed into an annuity.

Putting 90% of your investable assets into annuities can leave too little money available for emergencies, short-term spending needs, market investments, and changing circumstances.

An annuity should be part of a retirement plan—not the entire retirement plan.

Focus on Investable Assets

When evaluating how much money can appropriately be placed into annuities, the important number is your investable assets.

Investable assets may include:

• checking and savings accounts
• money market accounts
• certificates of deposit
• credit union accounts
• brokerage accounts
• retirement accounts
• other liquid financial assets

These are the assets that can realistically be repositioned into an annuity contract.

What Isn't an Investable Asset?

Your total net worth isn't the same as your investable net worth.

Assets that generally shouldn't be included in the annuity allocation calculation include:

• your primary residence
• vehicles
• land
• personal belongings
• collectibles
• other property that isn't readily available for investment

Including these items can make it appear that an annuity purchase represents a smaller percentage of your assets than it actually does.

Always review the financial information listed on the application to make sure it accurately reflects your investable assets.

All Annuities Count Toward the Allocation

Don't make the mistake of counting only one type of annuity.

All annuity contracts should be considered when determining your total allocation, including:

• MYGAs
• Immediate Annuities
• Deferred Income Annuities
• QLACs
• Income Riders
• Fixed Index Annuities
• legacy annuities
• long-term care annuities

The question isn't how much money you're placing into one particular policy.

The question is how much of your total investable portfolio is already committed to all annuity contracts combined.

Start With the PILL Framework

Before deciding how much money should go into an annuity, identify the problem you're trying to solve.

Annuities contractually address four primary goals through the PILL framework:

• Principal Protection
• Income for Life
• Legacy
• Long-Term Care

If your objective doesn't fall into one of these categories, you may not need an annuity.

Answer the Two Important Questions

Every annuity decision should begin with two questions:

What do you want the money to contractually do?

When do you want those contractual guarantees to start?

The answers determine which type of annuity may be appropriate and how much money is actually required.

The process shouldn't begin with an agent asking how much money you have.

It should begin with a clear definition of the goal.

Use the Least Amount of Money Necessary

The best annuity allocation rule is:

Use the least amount of money necessary to contractually solve the goal.

Suppose you need an additional $3,100 per month of guaranteed income beginning in two years.

The objective isn't to place the largest possible amount into an annuity.

The objective is to compare available contractual guarantees and determine the smallest premium needed to produce that income.

Once the goal is solved, the remaining assets can stay available for liquidity, growth, emergencies, or other retirement needs.

Reverse Engineer Your Income Goal

Lifetime income annuity planning can be approached in two ways.

You can start with a lump sum and determine how much guaranteed income it will produce.

Or you can start with the amount of monthly income you need and calculate how much premium is required to generate it.

Starting with the income need often creates a more disciplined approach because it keeps the focus on solving the actual retirement problem.

Don't Buy Potential

An annuity recommendation should be based on what the contract guarantees.

Be cautious when someone encourages you to allocate more money because a policy offers additional potential, hypothetical growth, or projected returns.

Potential doesn't pay the bills.

Contractual guarantees do.

You own an annuity for what it will do—not for what it might do.

Keep Enough Money Liquid

Retirement plans need flexibility.

Before purchasing an annuity, make sure you retain enough liquid assets for:

• emergencies
• medical expenses
• home repairs
• major purchases
• travel
• family needs
• changing retirement plans

Annuities can provide valuable guarantees, but they may also include surrender charges and restrictions on accessing the full account value.

That makes liquidity planning essential.

Annuities Should Solve a Specific Problem

The purpose of an annuity isn't to maximize the amount of money sold into a contract.

The purpose is to solve a clearly defined retirement problem.

Once the necessary amount of principal protection, lifetime income, legacy, or long-term care coverage has been established, stop.

There's no reason to allocate additional money simply because it's available.

Where to Compare Annuity Guarantees

If you're trying to determine how much money is required to solve a specific retirement income goal, you can use our annuity calculators to compare current contractual guarantees:

https://www.stantheannuityman.com/annuity-calculator/

The Bottom Line

Never put 90% of your investable assets into annuities.

Annuities can play an important role in retirement, but they should be used with precision. Identify the contractual goal, calculate how much money is required, and allocate only that amount.

Use the least amount of money necessary to solve for Principal Protection, Income for Life, Legacy, or Long-Term Care.

Buy annuities for what they will do—not for what they might do.

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