An immediate annuity can be a good solution if you want to know you can not outlive your money. Once you buy an immediate annuity, however, you can no longer access your principal. Before you make such a permanent decision, consider alternatives to immediate annuities. The best solution may be to build a combination of income producing investments by using an immediate annuity along with one or more of the choices below.
There are plenty of ways to create retirement income, but only a few of them come with guarantees. The guaranteed income riders offered in some of the recent variable annuity contracts are quite appealing. Unfortunately, you have to know what you are looking for to find the quality annuities, and weed out the ones with high fees and riders you’ll never use.
Retirement income funds are actively managed to be able to pay regular retirement income. They provide a great, all in one investment management solution, and offer more flexibility (but less guarantees) than annuities. One option; put a portion of your money in an immediate annuity for the guaranteed income, and a portion in a retirement income fund to provide you with more flexibility in the future.
When properly managed, a portfolio of index mutual funds can be structured to pay out consistent income designed to last over a specific life expectancy. For this strategy to work you have to follow a set of withdrawal rules; guidelines that tell you how much income you can take so you don’t run out. This strategy does not have the guarantees that an immediate annuity has, but you have the potential for an increase in income, and you retain access to your principal. Of course, if the investments perform poorly, you could experience a decrease in income.
If you want minimal risk, you might take your entire portfolio and buy bonds with different maturity dates so that one bond matures each year for the next thirty years. As each bond matures it would meet your cash flow needs. This strategy may not provide as much income as an immediate annuity, but you would retain access to your principal.
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