Track the companies that matter to you. It's FREE! Click one of these fan favorites to get started: Apple; Google; Ford.



The Best Source for Retirement Income

Watch stocks you care about

The single, easiest way to keep track of all the stocks that matter...

Your own personalized stock watchlist!

It's a 100% FREE Motley Fool service...

Click Here Now

Retirees used to be able to count on getting steady income from several sources after they quit working. Now, it's increasingly up to you to figure out how to finance your own retirement. And although the number of financial products designed to help you do exactly that is constantly on the rise, that only makes figuring out what your best options are that much more complicated.

The good old days
In the past, workers had the ability to build what some call a three-legged stool to support their financial needs in retirement. Many employers provided monthly pensions for their workers, and Social Security acted as a supplement to retirees' monthly income. Workers could use private savings to fill any gap between the income from those two sources and their needs, or to cover unexpected emergencies.

Now, though, pensions have almost disappeared for many workers, and Social Security's on shaky ground. To help savers take control of their own retirement, financial companies have come out with a number of investment vehicles, including annuities, payout funds, and target retirement funds. But the question you have to ask is how you can best use these vehicles to reach your own goals -- and how they fit in with your existing investment strategy.

Dealing with annuities
Annuities come with an attractive promise: guaranteed income as long as you live. At their simplest level, immediate annuities let you trade a fixed sum for a stream of monthly payments that last your entire lifetime.

Beyond that simple level, though, annuities get complicated in a hurry. Fixed annuities, which are bread-and-butter moneymakers for top sellers New York Life, Allianz, Aviva (NYSE: AV  ) , and AIG (NYSE: AIG  ) subsidiary Western National Life, resemble CDs by offering fixed interest rates for certain periods of time. Variable annuities, on the other hand, more closely resemble mutual funds, offering exposure to a wide variety of different asset classes; Prudential Financial (NYSE: PRU  ) , MetLife (NYSE: MET  ) , and AIG have been among the top sellers of variable annuities recently.

Many annuities also come with optional features, such as guarantees of minimum death benefits, monthly income, or withdrawals, as well as principal protection. Those features each come with an annual cost, though, that can push expense ratios well above levels for mutual funds and other non-insurance-based investments.

Fund alternatives
Because of the costs involved, some investors prefer to use payout funds. These investments are designed to make regular, predictable payments; the formulas each fund uses depends on its particular structure. In many cases, they're cheaper than annuities.

But what these payout funds don't provide is a guarantee. If your investment results aren't as good as you had hoped, then you may run out of money faster than you had expected.

Similar concerns have plagued target retirement funds. The idea behind these investments is simple: Pick a fund based on your planned retirement date, and the fund will automatically shift its investment objective as you get closer to retirement, becoming more conservative over the years. Eventually, when you retire, some funds shift to investments that produce retirement income.

What surprised many target fund shareholders, though, was how much money these funds kept in stocks, even for older investors. Many target funds suffered big losses in 2008, even for those within a year or two of retiring. Several fund companies, including Charles Schwab (NYSE: SCHW  ) , lowered stock allocations after 2008. But others, such as T. Rowe Price (Nasdaq: TROW  ) and Principal Financial (NYSE: PFG  ) , have responded with a broader range of investments, including commodities and real estate, in their target funds. The net result is that investors have to pay close attention to how their money's being invested.

Do it yourself
With all these potential surprises, you have to keep an eye on your money. The best solution for savvy investors is to keep a tight grip on your retirement assets rather than giving up control to asset managers. Annuities are very useful for countering longevity risk, but setting up your own portfolio of ETFs and individual stocks designed to provide consistent income gives you maximum flexibility to match income yield with desired risk level.

The good old days may be long gone, but you can still have a secure retirement. With the right mix of annuities and other investments, you can take control of your retirement income to get the results you want.

Many retirees are turning to dividend stocks for higher income. Click here to get The Motley Fool's five-page free report: 13 High-Yielding Stocks to Buy Today.

True to its name, The Motley Fool is made up of a motley assortment of writers and analysts, each with a unique perspective; sometimes we agree, sometimes we disagree, but we all believe in the power of learning from each other through our Foolish community.

Fool contributor Dan Caplinger is always looking for new income sources. He doesn't own shares of the companies mentioned in this article. Charles Schwab is a Motley Fool Stock Advisor selection. The Fool owns shares of T. Rowe Price Group. Try any of our Foolish newsletters today, free for 30 days. The Fool's disclosure policy is your source for the information you need.

Read/Post Comments (0) | Recommend This Article (4)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

Be the first one to comment on this article.

Compare Brokers

Fool Disclosure

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 1330539, ~/Articles/ArticleHandler.aspx, 10/26/2016 5:23:08 AM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...

Today's Market

updated 8 hours ago Sponsored by:
DOW 18,169.27 -53.76 -0.30%
S&P 500 2,143.16 -8.17 -0.38%
NASD 5,283.40 -26.43 -0.50%

Create My Watchlist

Go to My Watchlist

You don't seem to be following any stocks yet!

Better investing starts with a watchlist. Now you can create a personalized watchlist and get immediate access to the personalized information you need to make successful investing decisions.

Data delayed up to 5 minutes

Related Tickers

10/25/2016 4:00 PM
AIG $60.55 Up +0.23 +0.38%
American Internati… CAPS Rating: ***
MET $46.29 Down -0.35 -0.75%
MetLife CAPS Rating: *****
PFG $52.96 Down -0.04 -0.08%
Principal Financia… CAPS Rating: *****
PRU $82.89 Down -0.65 -0.78%
Prudential Financi… CAPS Rating: ****
SCHW $31.71 Down -0.48 -1.49%
Charles Schwab CAPS Rating: ****
TROW $66.04 Down -0.75 -1.12%
T. Rowe Price Grou… CAPS Rating: *****