Alternatives to an Immediate Annuity

Look at all your options before you buy an immediate annuity.

An immediate annuity can be a good option if you want to be sure you won't outlive your money in retirement, but you'll no longer have access to your principal after you buy one. This makes some people wary of putting all their money into this type of product.

You'll want to explore all your alternatives before making a final decision if you're thinking of purchasing an immediate annuity. The best solution for retirement is usually to build a combination of income-producing investments by using an immediate annuity along with one or more of these choices. 

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Variable Annuity With a Guaranteed Minimum Withdrawal Benefit Rider

Stacks of coins
Annuity riders can provide guaranteed income, but they aren't free. Stella/Getty Images

There are plenty of ways to create retirement income, but only a few of them come with guarantees. A guaranteed income rider is one option for achieving income that you can't outlive. It's an additional feature that can be added on to a variable annuity or an equity index annuity.

For an additional annual fee, the insurance company will guaranteed an amount you can withdraw for life at some point in the future. The terms of the guarantee are spelled out in the annuity contract. Unfortunately, you have to know exactly what you're looking for and weed out the options with super high fees and additional bells and whistles that you’ll never use because they always cost more. 

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Retirement Income Funds

Piggy bank on top of a pile of money.
Retirement income funds provide monthly checks, but the returns are not guaranteed. Stella/Getty Images

If you're not sure how to withdraw money from your mutual funds, consider a retirement income fund. They're actively managed to be able to deliver regular retirement income and they provide a solid, all-in-one investment management solution. They offer more flexibility than annuities, but they come with fewer guarantees.

You might consider putting 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. The key to making your money last will be to spend only the monthly income the fund provides to you without dipping into the principal.

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Specified Withdrawals From a Total Return Portfolio

Calculator and graphs
Having a withdrawal plan in place can save you from running out of money. menonsstocks/Getty Images

A portfolio of index mutual funds can be structured to pay out consistent income that will last over your life expectancy if it's properly managed. You have to follow a set of withdrawal rules for this strategy to work—guidelines that tell you how much income you can take so you don’t run out.

This strategy doesn't come with the guarantees that an immediate annuity provides, but you have the potential for an increase in income and you retain access to your principal. But you could experience a decrease in income if the investments perform poorly. 

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Laddered Bonds

Money and Bonds
A bond ladder may be something to consider. Here is how they work. George Diebold/Getty Images

You might take a portion of your portfolio and buy bonds with different maturity dates if you want minimal risk. You can set it up so that one bond matures each year for the next 10 years. This is called building a bond ladder or an income ladder.

Each bond would meet your cash flow needs as it matures. You can use CDs as well as bonds for this purpose. Sell off some of your stock portfolio to buy the next bond each year as you spend one year's investment. You might also build a 30-year bond ladder if you have enough savings. Like other options, this strategy might not provide as much income as an immediate annuity, but you'll retain access to your principal.


Always consult with a professional for the most up-to-date advice and information. This article is not investment advice and is not intended as investment advice.

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