Let me be right out front and direct: I am not a fan of ANY annuity vehicle, aside from a deferred annuity which can be a decent investment when other tax deferred savings options are maxed out.
Handing over a chunk of money to an insurance company whose real goal is to extract money from us, and make enormous profits for themselves, just does not sit right with me.
Plus, you cannot get the money back in the VAST majority of annuities (yep I know that some options exist, but not enough for my taste).
Say goodbye to liquidity with annuities.
With all that being said, I do realize that there is a segment of the "close to" and "currently" retired population that fixed annuities has a place for (I do really hate variables and hybrids by the way). I have not figured out for certain who those folks are, but I am still looking.
I suppose an individual with a small portfolio who has fewer options at hand and needs a reliable flow of income forever would be a good candidate (maybe). I wrote an article recently on my retirement point of view here.
For the rest of us (perhaps all of us?), I will show how an investor can have his cake and eat it too by investing in solid companies with strong dividends and a track record of dividend growth.
I used one of my screening tools and made it very simple to find companies that can pay you dividends in approximately the same amount as fixed annuities, with the potential for dividend growth, no sales fees to insurance salespeople, potential for upside capital appreciation, option availability to write covered calls to tweak even more income, and access to YOUR money.
Here were my requirements:
- Stocks currently yielding a minimum of 3.5%
- Stocks that have had a dividend growth rate of 3% over the last five years
That's it. And trust me I know that there are other factors but I am trying to keep it simple for us old folks and younger ones also.
When finished, 375 stocks hit my screen. Just 375, which given the amount of public companies out there, 375 is not really that many.
Then I put my stock picker hat on (you can see it in my picture) and picked my personal favorite, name brand, plenty of cash, solid companies that come right out of the 375, and fit into what I consider a well diversified portfolio.
In that list, 27 stocks popped out. With the 27 stocks that I have to select from (too many to mention here), an individual, with any sized portfolio, can generate the same and probably more regular income for almost every retirement need. (Nothing is perfect so please understand that as well). Plus, you still have access to all of your money.
Out of the 27 stocks I crafted an abbreviated list that you can begin with and be well diversified and enjoy the dividends with some really fine companies.
1) AT&T (NYSE:T)
4) Intel (NASDAQ:INTC)
5) Annaly Capital Management (NYSE:NLY)
6) Met Life (NYSE:MLU)
Obviously there are 21 others to choose from (send me a message to my inbox for the other 21), but I like these names, and it's a well rounded assortment to start with. I do find it funny that Met Life is one of my picks since they are one of the largest annuity sellers out there.
My Overall Opinion
With this simple portfolio, you would be hard pressed to find an annuity that comes close to offering everything a retiree needs, likes, and wants ... income, diversity, less risk, flexibility, covered call writing for even more "pop," and asset liquidity, which is a biggie.
Bottom line: Dividends win, annuities lose. (Obviously do your due diligence and every investor's needs are unique to them.)
Disclosure: I am long T, JNJ, NLY.
Additional disclosure: I will be BUYING EXC as of 10/26. Please do your own research as individual needs vary.