How much should you invest in an annuity this August?
The retirement landscape is shifting yet again. Interest rates, while down from their recent highs, are still elevated, resulting in some of the best annuity payouts we've seen recently. At the same time, inflation remains sticky, markets are bouncing between optimism and uncertainty and many retirees are wondering how to lock in a dependable income stream before conditions change. That, in turn, makes today's economic landscape a good one for weighing a move into annuities, which are unique retirement tools that offer reliable, consistent income for life.
Adding to the urgency is the fact that many analysts expect the Federal Reserve to begin cutting rates later this year or early in 2026. If that happens, future annuity contracts could pay less, since insurers base their payouts, in large part, on prevailing interest rates. So, for those sitting on a sizable nest egg — or even a modest one — the question isn't just whether an annuity makes sense now, but how you can determine the right amount to commit without compromising flexibility.
But finding that number isn't as straightforward as pulling a percentage from a rule-of-thumb chart. Your age, health, expected expenses and existing income sources all shape the decision, and the current market environment only adds more layers to consider. So, how much should you consider investing in an annuity this August? Below, we'll break down what you should know.
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How much should you invest in an annuity this August?
The percentage of your retirement portfolio that should go toward annuities depends on several personal and market factors that vary significantly from person to person. Rather than following a one-size-fits-all formula, consider these key elements when determining your annuity allocation this month:
Your age and retirement timeline
Your current age and retirement timeline play crucial roles in this decision. If you're in your 50s with decades until retirement, you might allocate a smaller percentage to annuities, perhaps 10% to 20% of your portfolio, allowing more room for growth-oriented investments. However, if you're already retired or nearing retirement, a larger allocation of 30% to 50% might make sense to secure a guaranteed income for essential expenses.
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Your existing guaranteed income sources
Your existing guaranteed income sources also significantly impact how much additional annuity coverage you need. So, start by calculating your monthly expenses, then subtract Social Security benefits, pension payments and any other guaranteed income. The resulting gap represents the income floor that annuities could help fill. Some experts suggest covering 70% to 80% of essential expenses with guaranteed income sources, which helps determine your target annuity allocation.
Your risk tolerance
Your risk tolerance also plays a significant role in determining how much to put toward an annuity. If market volatility keeps you awake at night, a higher annuity allocation might provide the peace of mind that's worth more than potentially higher returns from riskier investments. Conversely, if you're comfortable with market fluctuations and have a long investment horizon, keeping your annuity allocations lower allows for more growth potential.
Your health
Your health status and family longevity patterns should influence this decision as well. If you have reason to expect a longer-than-average lifespan, annuities become more attractive since they protect against outliving your money. A family history of longevity may justify allocating 30% to 40% or more to annuities for a lifetime income guarantee.
Market timing
Market timing considerations also come into play right now. The current interest rate environment affects annuity payouts, and some investors choose to dollar-cost average into annuities over time rather than making large lump-sum commitments. So, consider whether certain types of annuities, like immediate annuities, make the most sense now or if deferred annuities might better align with your timeline.
Why annuities could be a smart move this August
Annuities are built for stability, and right now, stability has real value. With inflation proving stubborn and market volatility becoming the norm rather than the exception, locking in a fixed payment can provide both income and peace of mind. And, if rates start to trend lower later this year, buying now would preserve higher payouts for the rest of your life.
This type of retirement tool also comes with tax advantages. In many cases, annuity earnings grow tax-deferred, meaning you won't owe taxes until you start receiving payments. This can be especially helpful if you expect to be in a lower tax bracket later in retirement. And for those who worry about outliving their savings, certain annuity structures, like lifetime income riders, can guarantee payments for as long as you live, no matter how long that is. That's a level of security other investment products simply can't match.
The bottom line
The right annuity allocation for August depends almost entirely on your financial situation, but most retirement experts suggest considering annuities for 20% to 50% of your portfolio, depending on your guaranteed income needs and risk tolerance. Rather than searching for a magic percentage, though, it makes sense to focus on covering your essential expenses with guaranteed income sources first and then determine how annuities fit into that strategy. So, this month, it could benefit you to take time to map out your income floor, assess your risk comfort level and explore how annuities might strengthen your overall retirement strategy without completely abandoning growth opportunities.