The Best Annuity Alternatives

Investment Real Estate

Real estate investing is still the best way to create wealth. According to some statistics, over 90% of millionaires were created through investing in real estate.^1. 

Investing in real estate offers you the opportunity to collect monthly rent checks that can be used as income to live on and help pay bills during your retirement.

Ways To Invest & Earn Income From Real Estate

• Residential
  • Single-Family
  • Small Multi-Family (2-4 units)
  • Large Multi-Family (5+ units, apartment and condo buildings)
• Commercial
  • Commercial properties (office, warehouse)
  • Storage units
  • Hotels
  • Car washes
• REITS & Syndication: You invest into a company that owns and purchases large residential and/or commercial properties and receive interest/dividend payments. Fundrise is one such example. *This is not an endorsement of Fundrise, it is for informational purposes. I am not compensated by Fundrise, nor do I have any vested interest in Fundrise.

Investment Real Estate vs. Annuities

✓ If so desired, investing in real estate allows you to leverage your money by putting down a percentage of the cost and mortgaging the rest. This should done with caution and well analyzed before doing. 

✓ Appreciation: Over time, real estate almost always goes up in value.

✓Depreciation/Tax Write-Offs: You gain tax advantages by writing off expenses.

✓Rental Increases: Allows you to raise rents over time and thereby increasing your income and return. 

✓Pass on to heirs

✓Sell and walk away

✕Property Management/Dealing With Tenants: You can solve this by hiring a property manager.

✕ Repair Costs: You can solve this by investing in a REIT or syndication

✕No guarantee of consistent income

This is not advice or recommendation to invest in real estate…it is for informational purposes only. Of course, before investing in anything, you should consult your financial advisor and tax accountant.

Dividend Paying Stocks

When you own a divided paying stock, you receive dividends (typically quarterly) from the company based upon corporate profits. You continue to receive dividends regardless of the actual share value. You can elect to invest those dividends right back into the company by purchasing more shares, or, you can receive a direct dividend payment to you. Dividends are counted as income and you will be taxed on them. 

Investing in what are known as the Dividend Aristocrats can be a good place to start. These are companies that have increased their dividend each year for 25+ years. Presently, there are only 66 such companies. You can learn more about them here: https://www.forbes.com/advisor/investing/dividend-aristocrats/

Dividend Paying Stock vs. Annuity

✓Dividend paying stocks have lower tax consequences.

✓ When you pass away, there’s always a value to your stocks (unless you invested in a bad company that went bankrupt) that can be passed on to your heirs. 

✓ Greater market/capital gains. If the stock goes up in value, your net worth goes up.

✓ Dividend paying stocks have less fees and NO surrender charges…you simply sell whatever shares you need to sell.

✓ Easy to transfer to another asset or stock. Don’t like the performance of your dividend paying stock? No problem—sell the shares and invest into another one.

✕ Dividend paying stocks do not guarantee a consistent income amount each month or quarter. 

✕ Dividend paying stocks may require greater initial investment to get about the same income.

✕ As with any stock, dividend paying stocks can suffer market losses.

Consider this article when comparing dividend paying stocks with annuities: https://www.investopedia.com/articles/financial-advisors/121615/better-retirement-dividend-stocks-or-annuities.asp#

This is not advice or recommendation to invest in dividend paying stocks…it is for informational purposes only. Of course, before investing in anything, you should consult your financial advisor and tax accountant.

Bonds

When you purchase a bond, you are basically loaning money (typically to the government) and in turn, you receive income through the interest the bond pays. In certain ways bonds are similar to annuities. 

Bonds vs. Annuities

✓ Bonds, like annuities offer predictable income…but not guaranteed income (see below).

✓ Generally higher yields than annuities.

✓ More liquid.

✓ Less fees.

✕ Bonds mature and are not guaranteed income for life.

✕ Default risk of the government or municipal entity.

✕ Less options how and when you receive income.

✕ Don’t take advantage of mortality credits if you live longer than the annuity company anticipated. 

This is not advice or recommendation to purchase and invest in bonds…it is for informational purposes only. Of course, before investing in anything, you should consult your financial advisor and tax accountant.

Reverse Mortgage

A Reverse Mortgage is best used when you own the home free and clear. When you take out a reverse mortgage, instead of you paying the bank/lender, the bank pays you a set amount of money either in a lump sum, line of credit or monthly payment. 

Reverse Mortgage vs. Annuity

✓ Don’t have to give up other investment assets to start receiving an “income.”

✓ Income is typically tax-free.

✓ No or less hidden fees…but there are still fees you have to pay in obtaining the mortgage and potentially when selling the home later.

✕ May not preserve the home/property for future generations.

✕ Riskier: May have challenges when it comes to selling the home when you can no longer live in the home.

This is not advice or recommendation to secure a reverse mortgage…it is for informational purposes only. Of course, before investing in anything, you should consult your financial advisor and tax accountant.

Important Notice: The information published on this web site is first and foremost, educational in nature and is not intended to be a recommendation to purchase an annuity or any specific insurance or financial product. You are strongly urged to consult with financial planning, tax, and legal advisors to determine if an annuity is suitable in your financial situation. Annuities are not deposits of or guaranteed by any bank and are not insured by the FDIC or any other agency of the U.S. government. All annuity guarantees are subject to the financial strength of the insurance company.

1. https://thecollegeinvestor.com/11300/90-percent-worlds-millionaires-do-this/