By Marc Gilman
Questions? Call (800) 927-9326 or email
Key Takeaways
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Guaranteed income solves a problem a portfolio can’t fully solve on its own — the risk of outliving your money — but which guaranteed-income tool works best depends heavily on how long you live and what inflation does, not just on which product you pick.
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Annuity payout rates move with interest rates and have recovered meaningfully. A $100,000 immediate annuity for a 65-year-old man is paying roughly $625–$675 a month in 2026, versus closer to $480 a month a few years ago during the low-rate period.
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Research modeling a $100,000 comparison over 20 years found Treasury bonds and TIPS ladders often outperform annuities under low-to-moderate inflation — but annuities pull ahead over a 30-year horizon, because that’s when longevity risk pooling starts to matter more than inflation erosion.
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An income annuity means trading the asset itself for a promise of monthly checks. Unlike a bond ladder, you generally can’t get the principal back, and most income annuities aren’t inflation-indexed the way Social Security is.
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Modeling from BlackRock and the Bipartisan Policy Center found that combining guaranteed income with a more aggressive allocation for the rest of the portfolio increased annual spending ability by 29% and cut downside risk by 33%, compared with a standard 60/40 portfolio.
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The research supports a partial allocation, not an all-or-nothing decision. How much makes sense depends on your specific income gap and existing wealth — not a fixed percentage that applies to everyone.
Why this question exists in the first place
Most people approaching retirement have never managed a “decumulation” problem before. During your working years, the goal is straightforward: save and grow. In retirement, the goal changes to something much harder to plan around — turning a pool of savings into an income stream that has to last for an unknown number of years, through unknown market conditions, without running out.
Morningstar’s retirement research team frames the starting point simply: identify your fixed, essential expenses, then look at how your nonportfolio income — Social Security, any pension, and any annuities — lines up against those costs. The gap between the two is what the rest of your plan needs to fill, and it’s also the number that determines how much (if any) guaranteed income might help. Guaranteed income covering essential expenses also has a secondary benefit worth naming directly: it gives you room to pull back discretionary portfolio withdrawals during a market downturn, rather than being forced to sell depressed assets to cover basic costs.
What the payout numbers actually look like right now
Annuity payout rates are directly tied to interest rates, since the insurance company invests the premium to fund your payments. That means the “deal” you get on an annuity changes over time, and it’s worth looking at current numbers rather than older ones.
Multiple 2026 surveys now show a $100,000 single-life immediate annuity paying a 65-year-old man in the range of roughly $625 to $675 a month, with a 65-year-old woman typically receiving a modestly lower amount due to longer average life expectancy. That’s a meaningful recovery from the depressed payout environment of a few years ago, when the same purchase might have generated closer to $480 a month. Framed as an effective income rate, that works out to somewhere in the neighborhood of 7–8% annually at today’s rates for a 65-year-old — higher than what most advisors would consider a safe portfolio withdrawal rate, though the trade-off is that the money is generally no longer liquid once annuitized.
Which guaranteed-income tool wins depends on your lifespan and inflation
It’s tempting to treat “guaranteed income” as a single category, but Social Security, Treasury bonds, a TIPS ladder, and an immediate annuity all behave differently — and none of them is the best choice in every scenario.
Morningstar’s own research has modeled this directly. Comparing $100,000 invested in Treasury bonds, a TIPS ladder, and a single-premium immediate annuity, the analysis found that under low-to-moderate inflation over a 20-year retirement — roughly a 65-year-old woman’s remaining life expectancy — Treasury bonds and the TIPS ladder generally outperformed the annuity, since annuity payments (without an inflation rider) lose purchasing power over time while bonds hold their nominal value over a moderate horizon. Under higher inflation, the ranking shifted, with the TIPS ladder moving ahead first and the annuity eventually catching up to and passing the Treasury bonds.
The result that matters most for this conversation, though, showed up over a longer horizon: extended out to 30 years, the annuity became the strongest performer under moderate inflation. That’s the point at which longevity risk pooling — the mechanism that lets an insurer offer higher guaranteed income than a bond portfolio can safely match — starts to outweigh the inflation-erosion disadvantage. In other words, the case for an annuity gets stronger the longer you end up living, which is exactly the scenario a portfolio alone has the hardest time insuring against.
What you give up when you annuitize
It’s worth being direct about the trade-off, since it’s easy for annuity comparisons to focus only on the income side. Buying an income annuity means trading an asset for a promise. Once the money is annuitized, you generally can’t get the principal back — unlike a bond ladder or a portfolio, where you retain ownership and control the whole way through.
That has a few practical implications. A bond ladder lets you reinvest each rung as it matures, capture rate changes over time, and “collapse” the strategy if a real emergency requires it. An annuitized income stream doesn’t offer that flexibility. It’s also worth noting that most income annuities are not indexed to inflation — Social Security is one of the few guaranteed-income sources that adjusts with the Consumer Price Index every year, and most annuities do not, unless you pay extra for a cost-of-living rider, which meaningfully reduces the starting payout. And as with any insurance product, you’re relying on the issuing company’s claims-paying ability over the long term, rather than a government guarantee.
None of this argues against guaranteed income. It argues for being clear-eyed about what’s being exchanged for what.
What the research says about how much to allocate
It’s worth being precise here, because the research is more measured than “annuities are good” or “annuities are bad.” It generally supports a partial allocation, sized to your specific situation — not converting a full portfolio into one, and not avoiding the idea altogether.
Recent modeling from BlackRock, done in partnership with the Bipartisan Policy Center, quantified one version of this directly. Combining guaranteed lifetime income with a more aggressive asset allocation for the remaining portfolio — since the annuity is already doing some of the “safety” job that bonds would otherwise do — was shown to increase annual spending ability by 29% and reduce downside risk (the worst-outcome spending scenarios) by 33%, compared with a standard 60% equity / 40% fixed-income portfolio. Delaying retirement and Social Security claiming from age 65 to 67 added a further 16% in spending capacity and another 15% reduction in downside risk, on top of the guaranteed-income effect. Both improvements were shown to persist well into a retiree’s 90s — directly addressing the scenario a portfolio alone struggles with most.
Separately, Morningstar’s research has found that once a retiree’s total savings reach roughly 36 times their annual income gap — the difference between essential expenses and what Social Security and any pension already cover — a portfolio-only approach can often sustain retirement successfully without much added benefit from annuitizing, because there’s enough wealth to self-insure against a long lifespan. Below that threshold, a partial allocation to guaranteed income has more often shown up in the research as reducing the risk of running out of money later in retirement.
Questions worth asking before allocating anything
None of this is a case for or against a specific product — it’s a framework for the conversation. Before deciding whether (or how much) to allocate to guaranteed income, it’s worth having clear answers to:
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What’s your actual income gap? The difference between what your essential expenses cost each year and what Social Security (and any pension) already covers is the number that matters most, not your total net worth.
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How does your total savings compare to that gap? This is where the “self-insurance” math comes in — a small gap relative to large savings changes the calculation significantly.
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How long might this money need to last? The research above shows the case for an annuity strengthens the further out your time horizon extends, particularly past 20–25 years.
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What’s today’s inflation outlook, and does the guaranteed-income source you’re considering keep pace with it?
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What are you giving up in liquidity and control, and are you comfortable with that trade-off?
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What happens to the rest of your portfolio’s risk profile once part of it is already acting like guaranteed income?
The bottom line
Guaranteed income solves a specific problem — longevity risk — that a portfolio alone structurally cannot fully solve. But the research doesn’t point to a single best tool or a single right percentage. Treasury bonds, TIPS ladders, and annuities each win under different combinations of inflation and lifespan, and each comes with a different trade-off in liquidity and control. What the evidence does support is a partial, deliberate allocation sized to your actual income gap — not a wholesale shift in either direction. Getting that starting math right, and understanding what’s being traded away in the process, is the first step long before any specific contract enters the conversation.
What To Do Next
If you’d like to work through your own income gap, current payout rates for your age, and how a partial allocation to guaranteed income might fit your plan, reach out and we’ll walk through the numbers together.
Questions? Call (800) 927-9326 or email
This article is for general educational purposes and is not a recommendation to purchase any specific insurance or annuity product. Payout rates, product features, and tax treatment vary by carrier, contract, age, and state, and change with market conditions. Consult a licensed advisor to review your specific situation.
