Retirement planning can feel like building a house. And just like a house, you need a strong foundation before you start adding the fun stuff like picture windows and fancy fixtures.
That foundation? Guaranteed income.
But here's the question most people get stuck on: How much do I actually need?
The answer isn't some magic number you pull from a calculator. It's based on what you spend—and more specifically, what you can't afford to run out of money for.
Let's walk through how to figure that out.
Quick Summary
Your retirement income floor is the amount of guaranteed monthly income needed to cover essential expenses like housing, food, utilities, and healthcare. A common guideline is that about two-thirds of monthly expenses should be covered by guaranteed sources such as Social Security, pensions, or annuities. Once the floor is covered, the rest of your savings can be invested more confidently for growth and flexibility.
Rates, payouts, and availability vary by carrier and time. Examples are for illustration only.
The "Safety First" Philosophy: Why Covering the Floor Matters
Here's the core idea: you don't gamble with groceries.
Your essential expenses—the ones you need to pay every month no matter what—shouldn't depend on market performance, interest rates, or how well your portfolio is doing in any given year.
This is what financial planners call your income floor.
Think of it like the base layer of a retirement income plan. It's not exciting. It's not trying to make you rich. But it gives you something priceless: peace of mind.
When your essential costs are covered by guaranteed income sources—Social Security, pensions, or income annuities—you can sleep at night. Even during a market downturn. Even if inflation ticks up. Even if your investments take a temporary hit.
You know your lights stay on. Your mortgage or rent is paid. Your prescriptions are covered.
And that confidence? It changes everything.
The Math of Essentials: Calculate Your Own Income Floor
So how much do you actually need?
Start by listing your non-negotiable monthly expenses. These are the things you can't skip or delay:
Essential expenses
- Housing (mortgage, rent, property taxes, insurance)
- Utilities (electric, water, gas, internet, phone)
- Food and groceries
- Healthcare (insurance premiums, prescriptions, copays)
- Transportation (car payment, insurance, gas, maintenance)
- Debt payments (if applicable)
Notice what's not on that list: travel, dining out, hobbies, gifts, entertainment. Those are important: but they're flexible. Your income floor is just the stuff that keeps the household running.
Let's say your essentials add up to $4,000 per month, or $48,000 per year.
Now add up your guaranteed income sources:
Guaranteed income sources
- Social Security
- Pension (if you have one)
- Any existing annuity income
If those sources total $3,000 per month, you've got a $1,000 monthly gap: or $12,000 per year.
That gap is what you need to fill with additional guaranteed income if you want true financial security.
The Gap: What Happens When Social Security Isn't Enough?
For most retirees, Social Security will cover part of the floor: but not all of it.
According to the Social Security Administration, the average monthly benefit in 2026 is around $1,900. For a married couple both receiving benefits, that might be $3,200 to $3,800 per month combined.
If your essential expenses are $4,000 to $5,000 per month, you've got a shortfall.
This is where tools like Multi-Year Guaranteed Annuities (MYGAs) and income annuities come into play. (If you're not familiar with how MYGAs work compared to other options, check out our breakdown in MYGA vs. CD: Why "Guaranteed" Doesn't Always Mean the Same Thing.)
The idea isn't to replace your entire income with annuities. It's to fill the gap so your essentials are locked in: no matter what happens in the stock market, the economy, or your health.
And here's the thing: once that floor is covered, you can afford to be more aggressive with the rest of your savings. Because you're not depending on it for survival.
Risk vs. Reward: Why a Secure Floor Lets You Invest Smarter
This is one of the most misunderstood parts of retirement planning.
People think that using guaranteed income products like annuities is "playing it safe" at the expense of growth. But the reality is the opposite.
When your essentials are covered, you can take more risk with the rest of your money.
Let's say you have $500,000 saved for retirement. You've used $150,000 to create a guaranteed income stream that fills your $1,000/month gap. That leaves you with $350,000 still invested.
Because your bills are paid no matter what, you don't need to panic-sell during a downturn. You don't need to pull money out when the market is down. You can leave that $350,000 invested for growth: and ride out the volatility.
This approach is sometimes called the "safety-first" strategy, and research shows it can actually increase your long-term spending power compared to trying to manage everything with a traditional portfolio withdrawal strategy.
You get security and upside. Not one or the other.
Real-World Example: A Couple Covering $4,000/Month
Let's walk through a simple case study.
Meet Tom and Linda.
They're both 65 and planning to retire next year. Their essential monthly expenses look like this:
- Mortgage: $1,200
- Utilities: $300
- Groceries: $600
- Health insurance premiums: $800
- Car insurance and gas: $400
- Prescriptions and copays: $200
- Property taxes (monthly average): $300
- Phone and internet: $200
Total essentials: $4,000/month
Their guaranteed income sources:
- Tom's Social Security: $2,200/month
- Linda's Social Security: $1,600/month
Total guaranteed income: $3,800/month
The gap: $200/month, or $2,400/year.
Tom and Linda have $400,000 in retirement savings. Instead of trying to manage withdrawals from that portfolio to cover all their spending, they decide to use a portion: around $50,000: to purchase a deferred income annuity that will start paying $250/month in guaranteed lifetime income starting at age 70.
(Want to see how this type of planning works with MYGAs in a "stairstep" approach? Check out How to Use a MYGA as a "Stairstep" to Guaranteed Lifetime Income.)
Now their floor is covered. The rest of their $350,000? They invest it for growth, knowing they don't need to touch it for essentials.
That's the power of a solid income floor. The key wasn’t maximizing returns—it was eliminating uncertainty.
How to Get Started
Building your income floor doesn't have to be complicated. Here's a simple three-step process:
1. List your essential monthly expenses.
Be honest. Include everything you can't cut or delay.
2. Add up your guaranteed income sources.
Social Security, pensions, rental income: anything you can count on every month.
3. Calculate the gap.
If your essentials are higher than your guaranteed income, that's your target for additional guaranteed income planning.
Examples are for illustration only. Actual payouts depend on age, rates, and product design.
Once you know your number, you can explore options like income annuities, MYGAs, or other strategies that fit your timeline and goals.
And if taxes are part of your planning picture (they should be), make sure you're thinking through how income sources are taxed in retirement. Our guide on Retirement Tax Planning Strategies can help.
Final Thought: Confidence Starts with a Floor
You've worked hard to build your savings. The last thing you want is to spend your retirement years stressed about whether your money will last.
That's what the income floor gives you: confidence.
Not a guarantee that nothing will ever go wrong. But a foundation strong enough to handle whatever comes next.
When your essentials are covered, you're free to enjoy the rest. Travel. Spoil the grandkids. Try that hobby you've been putting off.
Because you've built something that lasts.
Want to talk through your own income floor? Reach out—we’d love to help you map it out.