Annuities can be great tools. Often, fixed annuities can offer higher interest rates than your bank account, a CD, or even Treasury Bonds, and they do it all with comparatively low risk. But, there are many alternatives that may be far better options for some people.
One of the downsides to some annuities is that your portfolio can’t grow if you’re taking the interest as distributions, and there can be surrender charges as well. The 65-year-old retiree will see the value of his or her $500,000 stay the same over 10 years, and if you factor in an annual inflation rate of 3%, your purchasing power for that same $500,0000 will only buy $350,000 worth of goods. If that scenario doesn’t seem ideal for you, here are a few alternatives you might consider.
· Dividend-paying stocks that pay monthly and quarterly dividends can be good annuity alternatives. With the help of an experienced advisor, you may be able to even buy a collection of dividend-paying stocks that will not only pay you more income every year, but even offer the possibility of making your investments grow. Keep in mind, however, that there will be more risk. It’s important to have someone help you choose a diversified, broad portfolio of stocks. Diversification can help ensure that, even as some stocks may decrease in value, they will hopefully be offset by other stocks that are rising in value. This also means that you’ll be less likely to be forced to sell, because even if the stocks experience some volatility, the regular dividend payments will afford you an additional income stream.
· Another alternative can be Real Estate Investment Trusts or REITS. REITS can also offer income from the rents they receive. However, keep in mind that all REITS are not created equal. What you really want is a REIT with a long track record of paying and growing dividends.
· A third alternative is a bond ladder, in which you ladder individual bonds over several years in order to reinvest the income at a higher rate each year, as bonds reach maturity. These ladders can bring balance and discipline to a bond portfolio, and they don’t require timing the interest-rate environment. As long as rates increase over time, which they look likely to do, a bond ladder ensures there is regularly available capital to reinvest at higher rates while increasing your income over time, which can help you stay ahead of inflation.
· Finally, overfunded cash value life insurance policies can be another retirement income tool. Many insurance plans have a cash balance that you can build as part of your policy, in addition to the usual benefits offered by insurance. In many cases, you can spend this money in retirement. If structured correctly, distributions from premiums paid into the policy over the years, as well as properly structured loans, can provide tax-free income in retirement.
If you’re interested in how you can provide retirement income without annuities, or even just supplement your current income, we can help. We offer a no-obligation analysis of your current retirement income. You can call us at 216.520.1711, email us at Quarterback@Lineweaver.net, or simply click here.