By Marc Gilman
Questions? Call (800) 927-9326 or email
Key Takeaways
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The “safe” retirement withdrawal rate keeps getting smaller. Morningstar’s 2026 update puts it at 3.9%, down from the original 4% rule published in 1994 — and it’s revised annually, which makes it a moving target rather than a fixed plan.
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Even longtime annuity skeptics are changing their minds. Financial personality Jean Chatzky, who says she once “shut down” an advisor pitching an annuity for her mother, now plans to annuitize roughly 15% to 20% of her own portfolio.
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Annuity sales hit a record in Q2 2026 — $123.9 billion nationally, up 4% year over year, as savers respond to both a shrinking safe withdrawal rate and rising payout rates tied to long-term Treasury yields.
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A useful way to size a guaranteed income need: total your actual monthly spending, subtract your Social Security benefit, and what’s left is the gap a guaranteed income layer would need to cover.
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Annuity payouts are locked in on the day you sign — not the day you decide — which means today’s rate environment matters more than a general sense that “rates are good right now.”
The Math Behind a Shrinking Number
The 4% rule has guided a generation of retirement planning: withdraw 4% of your balance in year one, adjust for inflation annually, and the money is designed to last roughly three decades. It was built in 1994 by financial planner Bill Bengen, based on historical market returns.
Morningstar has revised the figure every year since, and the 2026 update brings it down to 3.9%. That sounds small, but on a $1 million balance, a tenth of a percentage point is $1,000 less to spend in year one — and less in every year after that. The fact that the number requires an annual recheck is itself the issue: a rule you have to re-verify every December functions more like a forecast than a fixed plan.
A Notable Reversal
Jean Chatzky spent much of her career focused on how to save for retirement. Her new book, released this September in partnership with AARP, focuses on how to spend it down — and opens with a position she says she never expected to hold.
She has described herself as a former “annuity denier,” recalling a moment where she declined an advisor’s annuity pitch on her mother’s behalf. Today, she’s planning to annuitize an estimated 15% to 20% of her own retirement portfolio — not the whole thing, but a meaningful slice specifically intended to cover essential spending.
Her reasoning centers on behavior as much as math. Research from the Retirement Income Institute (the research arm of the Alliance for Lifetime Income) found that retirees with annuitized income spend roughly twice as much as retirees holding an equivalent amount in savings alone — largely because guaranteed monthly income removes the anxiety of drawing down a balance that could run out.
Why Rates Matter Right Now
Annuity payout rates track long-term Treasury yields, since that’s largely how insurers price the guarantee. As of early September 2026, the 30-year Treasury sat at 5.28% and the 10-year at 4.80% — both meaningfully higher than where they sat just months earlier, which has pushed payout quotes up alongside them.
As one example: a 65-year-old man putting $100,000 into a single premium immediate annuity with a five-year period certain could get roughly $675 a month; a 65-year-old woman the same age, roughly $637 a month — reflecting a roughly 9% improvement over where the same quote stood in March 2026. It’s worth being clear about what that payment actually represents: most of a monthly annuity payment is your own principal coming back to you, not investment return. You’re trading a lump sum for a guarantee, not chasing a high yield.
Because payout rates move with the broader rate environment, and because the quote you lock in applies on the day you sign — not the day you eventually decide — timing can matter more than it might seem.
A Practical Way to Size the Gap
Rather than starting from a withdrawal-rate rule of thumb, a more grounded approach starts with your actual spending:
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Total your real monthly expenses using 12 months of bank and card statements — not an estimate.
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Subtract your expected Social Security benefit. The average retired worker collects a little over $2,000 a month following the most recent cost-of-living adjustment.
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What’s left is the gap a guaranteed income layer would need to fill.
As an illustration: a household spending $6,000 a month, with $2,071 coming from Social Security, has roughly a $3,929 monthly gap. Covering that entire gap with an immediate annuity, at the payout rates above, would take somewhere in the neighborhood of $580,000 in principal — which is exactly why most people who go this route are annuitizing a slice of their portfolio rather than the whole thing, sized to cover essential expenses specifically.
Questions Worth Asking
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Have you actually totaled your real monthly spending, or are you working from a rough estimate?
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What’s the true gap between your expected fixed income (Social Security, pension) and what you actually spend?
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Would covering just your essential expenses — rather than your entire retirement income — change how much of your portfolio you’d consider annuitizing?
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Have you compared quotes across more than one A-rated carrier, since payouts vary meaningfully insurer to insurer?
What To Do Next
If you’re trying to figure out whether a guaranteed income layer makes sense for your specific spending and portfolio, let’s run the actual numbers together rather than relying on a general rule of thumb.
Questions? Call (800) 927-9326 or email
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Sources: Morningstar, “The State of Retirement Income” (2026 edition); LIMRA, U.S. annuity sales data for Q2 2026; Federal Reserve H.15 data via the St. Louis Fed (30-year and 10-year Treasury yields); LifeAnnuities.us, SPIA rate tracker; Social Security Administration, 2026 COLA fact sheet; Retirement Income Institute / Alliance for Lifetime Income, retiree spending research (2024); Jean Chatzky, “The Forever Paycheck” and the HerMoney podcast.
This article is for general educational purposes and reflects information available as of the publication date. Annuity payout rates, Treasury yields, and product availability change regularly and vary by carrier — always confirm current quotes directly before making a decision. This is not a recommendation regarding any specific product. Consult a licensed advisor for guidance specific to your situation.
