How Much Money Do You Need to Buy an Annuity?

One of the first questions people have when considering an annuity is: How much money do I need to get started?

There isn't one universal amount that makes an annuity right for everyone. The amount that may make sense depends on your overall retirement picture, your income needs, how much money you want to keep readily available, and what you want the annuity to accomplish.

It’s less about reaching a certain dollar amount and more about how the annuity fits into your overall retirement strategy.

Is There a Minimum Amount to Buy an Annuity?

Many annuity contracts have minimum purchase requirements, but those minimums can vary by insurance company and product.

More importantly, meeting a contract minimum doesn't necessarily mean that putting that amount into an annuity is appropriate for your situation. An annuity is only one part of a retirement strategy, and it's important to consider the rest of your financial picture as well.

How Much of Your Retirement Savings Should Go Into an Annuity?

There is no percentage that is right for everyone.

Before deciding how much to allocate to an annuity, consider what you may need for:

• Everyday living expenses
• Emergency savings
• Healthcare and unexpected costs
• Near-term purchases or expenses
• Other investments and retirement assets
• Income you may already receive from Social Security, pensions, or other sources

Because annuities are designed primarily for long-term retirement objectives, maintaining adequate liquidity outside of the annuity can be an important part of the decision.

Start With What You Want the Money to Do

Instead of beginning with “How much should I put into an annuity?” it can be more helpful to begin with:

“What do I want this portion of my retirement savings to accomplish?”

For some people, the priority may be protecting principal from market losses. For others, it may be creating predictable retirement income or earning a fixed rate of interest for a specific period of time.

Once the goal is clear, it becomes easier to determine whether an annuity—and what amount—may fit into the larger retirement plan.

The Bottom Line

You don't necessarily need a particular level of wealth to consider an annuity. What matters is whether the amount you're considering is appropriate for your goals while leaving you with sufficient access to money for other needs.

At CDA of America, we help individuals and families understand their retirement income options and how different annuity strategies may fit into their overall retirement picture.

Have questions about annuities or retirement income?
Contact CDA of America to learn more and discuss your individual situation.