The advantages of annuities for generating income (compared to bonds, dividend paying stocks, equities, ETFs, ETNS, mutual funds, REITs and owning rental properties)

Friday, June 02, 2023 08:32 AM - Comment(s)

The advantages of annuities for generating income (compared to bonds, dividend paying stocks, equities, EFTs, ETNs, mutual funds, REITs and owning rental properties)

Annuities provide substantial advantages for generating income over bonds, dividend paying stocks or equities, ETFs, ETNs, mutual funds, REITs and even rental properties. Let’s take a quick look at them right now.

Annuities vs Stocks / Equities with Dividends

The value of the stock could fluctuate, which will incidentally affect your dividend amount.
The company can change the dividend amount at any time or cancel it completely, which means you are then stuck holding a less valuable investment.
Annuity products provide written guarantees on your principal and the income percentage, which are contractual agreements backed by the insurance company.

Annuities vs Government Bonds

The coupon (income percentage) on government bonds is fixed, so your income can never increase. Treasury Inflation Protected Securities (TIPS) are available, however the coupon, also known as the yield, is even lower than normal federal issued bonds.
Annuity products provide the opportunity to have an increasing income over time, helping you keep pace with inflation.

Annuities vs Municipal Bonds

Munis may provide tax free income, however again the coupon (income percentage) on municipal bonds is fixed, so your income can never increase.
Annuity products provide the opportunity to have an increasing income over time, helping you keep pace with inflation.

Annuities vs Corporate Bonds

The coupon (income percentage) on corporate bonds is fixed, so your income can never increase. They are also more risky compared to annuities.
Annuity products provide the opportunity to have an increasing income over time, helping you keep pace with inflation and are a safer option.

Annuities vs REITs (Real Estate Investment Trusts)

REITs spin off income to their investors similar to dividend paying equities. The situation is the same whereby there is no contractual guarantee, and the dividend amount can fluctuate based on voting by the board of directors of the REIT. Again, REITs can be a riskier choice if the entity is not managed well.
Annuity products provide written guarantees on your principal and the income percentage, which are contractual agreements backed by the insurance company.

Annuities vs Rental Properties

Rental income properties like an apartment or townhome that you rent out requires substantial work. For example finding tenants, replacing tenants, fixing the washer and dryer (expensive!), and paying contractors if you can get one to do plumbing or electrical work. You also run the risk of the property being empty for several months in between tenants while you fix things and paint it to make it look appealing. With annuities you do not have to lift a finger, allowing you to enjoy your free time. Your income is deposited automatically into your bank account every month.

Annuities vs Funds (ETNs, ETFs and Mutual Funds) that pay income

ETNs (exchange traded notes), ETFs (exchange traded funds) and mutual funds give you good diversification. However, again one can be painted into a corner similar to that of equities that pay a dividend. The ETN, ETF or mutual fund could fluctuate, which will incidentally affect your dividend amount.
Annuity products provide written guarantees on your principal and the income percentage, which are contractual agreements backed by the insurance company.

Annuities provide many benefits:

Income for life options (single or joint).
Principal protection (against losses and market downturns.
Tax deferred growth.
Good to use with lump sums e.g. an inheritance, real estate sale proceeds, bonus from your employer, business sale proceeds, investment portfolio proceeds, all of which are non-qualified assets with no contribution limit.
Good to use with retirement accounts like IRA, ROTH IRA, SEP IRA, SIMPLE IRA, 401k rollovers, 401(a), 403(b), 457(b), 408(b), 408(A) and other accounts (qualified assets) which are subject to IRS contribution limits.
Good to use with Trusts.
Growth guarantee and bonus features.
Income guarantee features.
Death benefit guarantee features.
Nursing home income features.
Terminal illness flexibility for return of principal.
Automatic deposit of income (monthly, quarterly or annually).
Security that your assets and income are protected.
FLEXIBILITY to either take all of your money back plus any growth OR receive income for life that you cannot outlive.

As we can see, annuities win hands down every time. However, selecting the right insurance company, the best annuity products with the right features and setting up your annuity correctly is critical. Annuity Pros is here to help you navigate all annuity complexities.

The best part is that it does not cost our clientele any extra money by using our expertise. We are compensated directly from insurance companies who design and issue annuity products.

We hope you find this article helpful. Drop us a line anytime if you need some expert help with annuities!

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