Many people who lived through the 2008/2009 stock market bubble are still very nervous about the future of the stock market. Many are especially nervous about relying on the market as a means of reliable support during their retirement years.
As well they should be.
Most people aren’t aware that there are alternatives to Wall Street when it comes to achieving income security during retirement.
I have been doing some writing recently about “pooled income” – an idea that has existed in various forms for over 2,000 years – and how this resource may prove to be one of the biggest salvations for the Baby Boomer generation.
I looked up some numbers today to run a quick comparison between various alternatives for generating income at current rates – money market deposits, long term treasuries, and an immediate life annuity.
For this comparison, I assumed a male age 65 with $500,000 to allocate.
Here is how the numbers came out,
- Money Market. Money market rates today (4-25-16 / www.bankrate.com) were paying between 0.85% and 1.00%. Assuming a 1% return on a $500,000 allocation, yields an income of $5,000/year.
- 30 Year Treasury Bonds. The yield on 30 Year U.S. Treasuries today (4-25-16 / data.cnbc.com) was hovering around 2.72%. Assuming a 2.72% return on a $500,000 allocation, yields an income of $13,610/year.
- Immediate Life Annuity. I visited the CNN Money Retirement Calculator and ran a $500,000 lump sum for a 65 year old male for an immediate life annuity in my area. The result came back an estimated $2,744 per month for an income of $32,928/year.
These numbers change practically by the minute, but the general conclusion is clear. The annuity far exceeds the income generating capacity of the other alternatives for the same allocated amount.
Why does the annuity yield so much more income?
Because it is a pooled income product. Pooled income is the primary engine behind entities as commonplace as Social Security and defined benefit pension plans.
Baby Boomers throughout their lifetimes have been barraged by the financial industry and the media that the stock market as the be-all and end-all for achieving retirement security, but there are other alternatives.
To learn more about or discuss the suitability of various income alternatives for your situation, you are welcome to contact me by email or through my Cincinnati, OH insurance agency, McCarthy Stevenot Agency, Inc.
So, what do you think?
- Are you worried about the markets and how they may affect your financial security in retirement?
- Have the past few bubbles and bursts impacted your faith in the market?
- Do you think the market is likely to become more or less reliable in the coming years?
- Are you surprised at the difference in income amounts in the comparison above?