Most retirement plans start with the size of the pile. A better first question is how much income has to show up every month no matter what the stock market does. A podcast I like calls that number the minimum dignity floor. It's the least you'd want coming in to cover housing, food, and the other necessities. It doesn't have to pay for travel.
Guaranteed income can come from a few places. Social Security is one, and a pension is another if you have one. Subtract those checks from your floor, and what's left is the gap. An income annuity is one way to fill it. An annuity is a contract with an insurance company, and an income annuity is built to turn a sum of money into payments for as long as you live. That means the company carries the risk of you living a long time, instead of your portfolio. The guarantee is only as strong as the company behind it, so its financial strength matters.
I bought my first one, $100,000 inside my wife's retirement account. It's an indexed annuity. That means growth is tied to a stock index, but the money never sits in the market, so a down year credits zero instead of a loss. It holds two buckets. The cash bucket is what you'd get if you cancelled. The income bucket gets a bonus, which is an extra percentage added on top of what the index credits, and only that bucket sets your lifetime payments. I showed the contract and its illustration on screen in my walkthrough of why I bought an annuity. Because the cash bucket grows slowly, I wouldn't buy this design if I thought I might want the money back as cash.
The guarantee is low, and I know it. If the index never credited a cent, my contract would pay about $4,700 a year starting at 65. Illustrations that replay the last 10 and 20 years of index history show far bigger payments, but those are projections, not promises, and I'm not counting on them. I'm comfortable because this is one piece of a larger plan. I also have cash value in my life insurance policies and a large retirement account, and I could use part of that to buy more guaranteed income later.
If you're closer to retirement and need a number you can count on, a different type of annuity fits better. Some contracts guarantee a fixed growth rate on the income bucket for 10 years, so you can calculate your payment before you buy. I'm more than 10 years out, so those don't match my timeline.
My plan is to buy about five contracts of $100,000 each over the next few years instead of one for $500,000. The longer you wait to turn the income on, the larger it gets, so separate contracts let me start one when we need it and let the rest keep growing. The downside is that this money isn't meant to be pulled out as cash. Taking it early can mean charges, taxes, and penalties. We'll also choose between a single-life and a joint-life payout when we turn it on. Joint pays less but continues as long as either of us lives, the same trade-off covered in the pension survivor election.
I'm a licensed insurance broker, not a financial advisor, and this is my own plan, not a recommendation for yours. Write down what housing and food cost you each month, subtract your estimated Social Security check from ssa.gov, and the number left over is the gap you'd need to cover.