Annuities and Bonds

The online site of Investing Daily sometimes have interesting articles and this is one of them. The article is talking about what is better in retirement, to buy bonds or annuities for an income.

I had not considered the purchasing of bonds as a retirement income instead of an annuity. The author talks about the reluctance of people to buy annuities and considered if buying bonds would be a good substitute. The conclusion that he came to was that by purchasing bond, people might run the risk of running out of money.

One objection that I would have in buying bonds is all the trouble dealing with bonds would entail. In order to get a comparable income, some bonds would have to be sold off each year. You had to consider the fact that when interest rates rise, the value of your bonds (i.e. your capital) would decrease. On each bond sale you would have to determine for tax purposes if you had a capital gain or loss.

I can see the logic of putting some or all of your retirement money into an annuity. Life annuities pay you a monthly income until you die. In Canada, where I live, annuities are safe as no insurance company has defaulted on annuities. Yes, they are not particularly flexible, but you do get a guaranteed income for life. If you buy an10 or 15 year guaranteed life annuity, you or your heirs will probably get back the capital put into the annuity if you die within the guaranteed period.

I am not into annuities, nor bonds, as a matter of fact. I like making dividend income to live off of. However, annuities provide safe guaranteed no hassle monthly income for those that purchase them. The problem currently is that interest rates are much lower than normal so monthly income under currently purchases annuities would be lower than normal. However, interest rates will not be low forever. There are also lots of varieties of annuities now to choice from.

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This blog is meant for educational purposes only, and is not to provide investment advice. Before making any investment decision, you should always do your own research or consult an investment professional. I do research for my own edification and I am willing to share. I write what I think and I may or may not be correct.

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