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. 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. 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. 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. 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.
