Most people retire without a pension. But you can build one — or at least something that works like one — by converting a portion of your savings into a guaranteed income stream that pays you for life, no matter how long you live.
Of all the annuity products on the market, money expert Clark Howard recommends only two: the single premium immediate annuity (SPIA) and the deferred income annuity (DIA).
Both offer straightforward, guaranteed lifetime income without the high fees and commissions that come with more complex products like variable or indexed annuities. With a SPIA, you hand an insurance company a lump sum and income starts right away. With a DIA, you pay now but income starts at a future date you choose — which typically means a higher monthly payment in exchange for waiting.
The Core Trade-Off
When you keep money invested and draw it down yourself, you carry two risks:
Running out of money if you live longer than expected.
Making poor decisions under pressure when markets drop.
When you convert a portion of savings into a lifetime income annuity, you give up control and liquidity in exchange for eliminating both of those risks (at least for that slice of your money).
Neither choice is obviously right. The question is whether the certainty of the annuity is worth what you’re giving up, relative to what you could reasonably earn on your own.
See What the Income Could Look Like for You
Before you can evaluate the trade-off, you need an actual number to work with. Here are two Team Clark-approved options:
Schwab Fixed Income Annuity Calculator gives you a quick Schwab quote based on age, premium, and income start date.
ImmediateAnnuities.com runs quotes from multiple insurers at once, so you can see the spread. Also lets you model inflation adjustments, period-certain guarantees, and joint life options if you want to cover a spouse.
Payout rates vary more than most people expect across insurers. Getting multiple quotes is worth the five minutes it takes.
The key figure to pay attention to is the payout rate (the annual income divided by the premium). A 65-year-old might see around 6–7% today. An 80-year-old might see 9–10% or more, because the insurer is pricing in a shorter expected payment period. A deferred income annuity will show a higher rate than an immediate one at the same age, since the insurer holds your money longer before paying out.
Run the Numbers
Once you have a quote, plug it into our Annuity Breakeven Calculator. Enter your premium, the monthly income you’ve been quoted, your current age, and when your income would start. Then set a realistic return assumption for what you’d earn if you kept the money invested instead.
Two numbers in the output tell you most of what you need to know:
Principal recovery age is when your cumulative payments equal the premium you paid in. Before that age, you’ve received less than you put in.
Portfolio exhaustion age is when a self-managed portfolio — earning your assumed return and making the same monthly withdrawals — would run out of money. Past that age, the annuity wins. A portfolio that depletes at 88 while the annuity keeps paying to 100 is the whole longevity argument in a single number.
If portfolio exhaustion happens at 84 and your family tends to live into their mid-90s, the trade-off looks compelling. If it doesn’t happen until 96 based on your return assumptions, the case is weaker.
The Deferral Question
If you’re in your 60s and don’t need income yet, a deferred income annuity can shift the math. You pay the premium now, income starts at a date you choose — say, age 80 or 85 — and the monthly payment is substantially higher than a SPIA at the same age because the insurer holds your money longer.
The flip side: During the deferral period, your alternative portfolio also keeps growing without any withdrawals. The calculator models this — the alt portfolio gets a compounding head start during those years. Whether that head start is enough to outlast the higher deferred payout is what you’re evaluating.
A common approach is to treat a DIA starting at 80 or 85 as longevity insurance — a floor that kicks in if you live well past your life expectancy. You fund your early retirement years with your portfolio and Social Security, and the DIA handles the tail risk.
Questions To Work Through Before Deciding
How much guaranteed income do you already have? If Social Security plus any pension already covers your basic expenses, the case for an annuity is weaker — you already have a floor. If your only guaranteed income is a modest Social Security check, converting some savings into additional guaranteed income gives you something to anchor your budget to.
What return assumption is realistic for your alternative portfolio? The calculator defaults to 5%. If your actual allocation is conservative (heavy in bonds or CDs), use a lower number. The portfolio exhaustion age arrives faster than most people expect, at 3–4%.
Are you factoring in your health? Annuity pricing is based on average life expectancy. If your health suggests a shorter-than-average lifespan, the math tilts toward keeping the money invested yourself. If longevity runs in your family, it tilts toward the annuity.
What happens to the money when you die? A standard single life annuity pays nothing to heirs after you die. If leaving assets matters to you, that’s a real cost. You can buy riders that guarantee a minimum payout period — 10 or 20 years — but they reduce the monthly income. Run the numbers both ways.
Should you add an inflation adjustment? A fixed monthly payment that feels comfortable at 70 may cover a lot less ground at 85. If you’re buying an annuity partly because you expect to collect for a long time, a COLA rider — which increases your payment by a set percentage each year — is worth pricing out. The catch is that inflation-adjusted annuities start with a lower monthly payment than fixed ones, sometimes meaningfully lower. Whether the trade-off makes sense depends on how long you expect to collect and what your other inflation-protected income sources look like. ImmediateAnnuities.com lets you compare fixed and inflation-adjusted quotes side by side.
How much liquidity do you need? Once you hand the premium to an insurer, that money is gone. You can’t get it back if an emergency arises. Keep a meaningful cash reserve before annuitizing any significant portion of savings.
How Much To Convert
There is no universal right answer, but a reasonable starting framework is to cover your essential expenses with guaranteed income. Add up what your fixed monthly costs actually are — housing, food, utilities, insurance, medication — and see how far your guaranteed income gets you. If there’s a gap, that gap is the income an annuity could fill.
The rest of your savings stays invested, available for discretionary spending, healthcare surprises, and as something to pass on.
Converting everything to an annuity is rarely the right move. Neither is ignoring them entirely if you have a meaningful longevity risk and no pension. Covering the floor with guaranteed income and leaving the rest to grow is how most people arrive at a sensible balance.
Final Thoughts
A lifetime income annuity isn’t about maximizing returns — it’s about removing one of retirement’s biggest risks: outliving your money. You’re trading some flexibility and upside for a predictable paycheck that never stops.
That trade-off works best when it solves a real need. If your guaranteed income already covers essentials, you may not need an annuity. But if there’s a gap, converting part of your savings into lifetime income can create a reliable financial floor.
Clark’s advice: Keep it simple and limited. Use straightforward options like SPIAs or DIAs, compare quotes, and only annuitize what you need. The goal isn’t to replace your portfolio — it’s to protect it.
Done right, you end up with two buckets: guaranteed income for needs, and invested assets for growth and flexibility. That balance is what gives many retirees the confidence to spend and enjoy their money.
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