Annuities vs. Other Retirement Income Strategies

April 21, 2023


I’ve spent years discussing various retirement income solutions with clients. We all want to achieve a comfortable retirement, and it’s no secret that “it’s all about cash flow.” Talk with almost any wealthy person and they are more concerned about “cash flow” than they are about a big pile of money.  A big pile of money does not benefit you if you have no idea how, or when, you can spend it. But how do you generate that residual income in retirement? 

Let’s dive into the pros and cons of annuities and compare them to other popular retirement income solutions.

Rental Real Estate


  1. Residual Income: Rental properties can provide a steady stream of income from an appreciating asset.
  2. Tax Advantages: Owning rental properties comes with several tax incentives, which can improve your overall financial situation.
  3. Tenant-Paid Mortgage: When you purchase a property with the intent of renting it out, tenants’ rental payments contribute to paying off the mortgage. Over time, the property appreciates, and once the mortgage is paid off, most of the rental income becomes pure profit.


  1. Dealing with Tenants: Managing tenants can be challenging and time-consuming. Issues such as broken toilets and sinks, missed rental payments, and evictions can cause stress and frustration.
  2. Property Maintenance: Owning rental properties requires ongoing maintenance, such as roof and HVAC replacements, which can be expensive and time-consuming.  Not to mention taxes and insurance which can be outrageous depending on the property location.
  3. Potential for Stress in Retirement: Unless you plan on hiring a property manager (which comes with its own set of challenges), owning rental real estate during your retirement years can be anything but relaxing.

Owning a Business


  1. Wealth Creation: Many “blue collar” wealthy individuals have owned or currently own a business. Owning a business can be an effective way to duplicate yourself through employing others and earning a significant income.
  2. Predictable Income Stream: Businesses with systems, like franchises, can offer a more predictable income stream.
  3. Tax Advantages: One of the best aspects of owning a business is the tax advantages. You get to spend your earnings first and then pay taxes, instead of paying taxes first and spending what the government allows you to keep.
  4. Residual Income or Sale Potential: Ideally, you want to build a business that generates residual income or can be sold to someone who wants to take it over without starting from scratch.


  1. Employees: Managing employees can be challenging, as no one cares more about your business than you. Trusting employees may not be ideal for someone who wants to start enjoying their retirement and taking more time for themselves.
  2. Stress, Long Hours, and Regulations: Owning a business can come with stress, long working hours, and dealing with various regulations. Moreover, businesses can be affected by economic conditions, depending on what industry you are working in.
  3. Not Ideal for Hands-Off Investors: This type of retirement income solution might not be suitable for those who want a residual income without the stress of managing how it’s earned.



  1. Predictable Return: Investment options like dividend-paying stocks, bonds, oil wells, CDs, and promissory notes can offer a predictable return on your money, making it easier to plan your retirement income.
  2. Backed by Institutions or Tangible Assets: Investments like stocks, bonds, and promissory notes are often backed by large institutions or tangible assets, such as real estate or equipment, which can help preserve your principal investment in the case of a default.
  3. Residual Income: Investment options like dividend-paying stocks or bonds can provide a residual income to support your retirement expenses.


  1. No Guarantees: Nothing in this category of investments is truly guaranteed. Companies like Enron and Lehman Brothers serve as reminders that even “sure-thing” investments can fail, resulting in major losses.
  2. Income Uncertainty: Companies can decide to stop paying dividends, which can impact your retirement income. For example, when GM and Ford stopped paying dividends in 2020, investors lost a significant income source with no say in the matter.
  3. Risk of Loss in Principal: Cash flows from investments like oil wells or precious metal mining operations can disappear quickly, taking your principal investment with them if they’re not backed by a tangible asset that you have a legal lien against.
  4. Fluctuating Rates: CDs and bonds can experience dramatic changes in rates, affecting the cash flow you receive from the same amount of principal.

Social Security


  1. Predictable: Social Security provides a predictable income source during retirement, making it easier to plan your retirement budget.
  2. Backed by the Federal Government: Social Security benefits are backed by the federal government, which adds a level of security to the income you receive.
  3. Increasing Income: The longer you wait to claim Social Security benefits, the higher your monthly payments will be.
  4. Unlikely to Disappear: Despite discussions about Social Security’s future, no politician is likely to vote for its complete elimination.


Potential Benefit Cuts: While Social Security is unlikely to disappear, future generations could face benefit cuts, impacting the amount of income they receive in retirement.

Defined Benefit Pensions


  1. Steady Stream of Income: Defined benefit pensions provide a steady stream of income for life, ensuring financial stability during retirement.
  2. Spousal Benefits: These pensions can be set up to continue paying your spouse after your passing, providing additional financial security for your loved ones.


  1. Limited Availability: Less than 25% of Americans have access to a defined benefit pension, making it an uncommon retirement income solution.
  2. Pension Mismanagement: Many pensions have been mismanaged for decades, leading to significant issues in fulfilling their promises to hard-working individuals who paid into them for years.
  3. Reduced Benefits: Some pensions have drastically reduced the incomes of their recipients, even after they had already started collecting benefits, impacting retirees’ financial stability.

Income Annuities


  1. Guaranteed Monthly Income: Income annuities provide a guaranteed income for life with no management of the asset required.
  2. Backed by Life Insurance Companies: These products are backed by multi-billion-dollar life insurance companies and the Legal Reserve System.
  3. Higher Payout Rates: Income annuities can, and most often do, offer higher payout rates than managed money accounts or interest-bearing accounts.
  4. Joint Life Options: Annuities can be set up for joint life with a spouse, ensuring financial stability for both partners.
  5. Passing Account Value to Beneficiaries: The remaining account value can be passed on to beneficiaries.
  6. Principal Protection: Income annuities protect your principal from market risk.
  7. Qualified and Non-Qualified Funding: They can be funded using both Qualified and Non-Qualified money.
  8. RMD Offset: Income from annuities can help offset Required Minimum Distributions (RMDs) when Qualified Money is used.
  9. Improved Portfolio Outcomes: Economists have shown that using an income annuity can improve the rest of your investment portfolio.  I made a great video that explains why.  You can watch it by clicking here!


  1. Level Payout: Unless intentionally set up to increase, income annuities will provide a level payout, which may not keep pace with inflation.
  2. Principal Spent Down: With most income annuities, your principal will be spent down over time. 
  3. High Fees in Some Cases: Some annuities, such as variable annuities, can have very high fees as well as losing principal due to a market decline.
  4. Age Limitations: Unless the principal is annuitized, you have to wait until 59 ½ to avoid the 10% IRS penalty.

When it comes to retirement income solutions, there are trade-offs with each option. Annuities offer guaranteed income for life and protection from market risk, but it’s not enough to just have an annuity. You have to have the RIGHT annuity for your personal situation.  It’s crucial to work with an educated and non-captive advisor that can compare all of the available options for you.

If you want to learn how to use annuities in the most effective strategies, then I highly recommend watching my video series, “20% More Income in Retirement”, and exploring more articles on annuities and retirement planning with my newsletter. 

Together, we can find the right solution to secure your financial future.  So, don’t hesitate to reach out for a short conversation by clicking the “Schedule a Call” button!

All the best,


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Watch this short video series to learn which annuities I use and how I use them to get an average of 20% more spendable retirement income than any other advisor plans you've seen.

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