Annuity vs Systematic Withdrawal: Which Retirement Strategy Wins?
Should you buy a guaranteed income stream or manage withdrawals yourself? The math depends on your situation.
An annuity provides guaranteed income for life — you give an insurance company a lump sum and they pay you monthly until you die. Systematic withdrawal means you keep your money invested and withdraw a percentage (typically 4%) annually. Both approaches have loyal advocates and legitimate trade-offs.
The Annuity Case
Guarantees: you cannot outlive your income. A 65-year-old putting $500,000 into a single premium immediate annuity (SPIA) receives approximately $2,800-3,200/month for life. If you live to 95, you receive far more than you paid. Peace of mind is the primary benefit — you never worry about market crashes or running out of money.
The Systematic Withdrawal Case
Flexibility: you keep control of your money. At 4% withdrawal from $500,000, you take $20,000/year ($1,667/month) — less than the annuity. But your principal continues growing. Historically, a 60/40 portfolio with 4% withdrawals lasts 30+ years 96% of the time, and often leaves a significant inheritance. You can also adjust withdrawals up or down based on market conditions and needs.