Why It Pays to Consider an Annuity on Top of Social Security

Quick Read

Social Security typically replaces only 40% of pre-retirement income for average earners.
Retirees generally need 70% to 80% of former income to maintain comfortable living standards.
Annuities provide guaranteed lifetime income and protect against market volatility and longevity risk.
Annuities today are more compelling than they have been in years. It’s possible to generate guaranteed income for 3-10 years with as little as $1,000. It’s nuts more people don’t know about it. Get Started Now (Sponsor)

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By Maurie Backman Published Dec 3, 2025 at 8:47 AM EST

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For many retirees today, Social Security serves as a key source of income. And once you retire, it may play a pretty big role in your finances, too.

But if you think it’s okay to retire on Social Security alone, you’re sorely mistaken. A better bet is to have income on top of Social Security to ensure that you’re able to live comfortably once your career comes to an end.

Why you can’t retire on Social Security alone

Many people find that their expenses drop considerably once they’re retired. Some of the costs that might shrink for you include:

Housing, if your mortgage is paid off by the time you end your career
Transportation, if not commuting to work means saving on gas and tolls or even not needing a car
Household maintenance and cleaning, if you have the time to do that work yourself instead of having to pay others to do it for you

But some expenses of yours might stay the same or even increase in retirement. These include:

Utilities
Food
Entertainment
Healthcare

Now, let’s talk about Social Security and the amount of money it might pay you. The monthly benefit you get will hinge on your personal earnings history as well as your filing age. But generally speaking, if you earn an average salary, you can expect Social Security to take the place of about 40% of it once you retire.

You may not need 100% of your former income to live comfortably as a retiree, but you should expect to need about 70% to 80%. This is a common benchmark, as it accounts for some living costs decreasing but others increasing.

What this means is that you should anticipate needing income outside of Social Security to avoid having to worry about money. And an annuity could be a great way to bridge that gap.

What can an annuity do for you?

An annuity might work similarly to Social Security in that it could provide you with guaranteed ongoing income throughout your retirement.

Some people save and invest well for their senior years and are able to tap their portfolios during retirement to supplement their Social Security checks. But the market can be volatile and unpredictable. And if you need to tap your portfolio at a time when the market is down, you could end up locking in permanent losses.

The nice thing about an annuity is that it can protect you from market turbulence. If you have income from an annuity at your disposal, you may not have to touch your investments at a time when their value has decreased.

Also, while you can do your best to save a lot of money for retirement, that’s not always an easy thing to do. And if you end up living well into your 90s or beyond, you risk outliving your portfolio.

Annuities are designed to help protect against this. With an annuity, you’re generally guaranteed income for life — however long that ends up being.

All told, you should not plan to retire on just Social Security. Rather, it’s important to set yourself up with supplemental income. An annuity could be an optimal solution in that regard, so it pays to consider buying one for the peace of mind it could give you.