Buy Yourself a Pension!http://www.fool.com/retirement/general/2009/05/20/buy-yourself-a-pension.aspx Selena Maranjian
May 20, 2009
I'm sure this isn't news to you: Fewer and fewer companies are offering pensions to their employees. Existing traditional pensions are being frozen or eliminated all over the place, at companies such as Motorola, 3M, and elsewhere.
That can sure seem like a raw deal (and it often is!), after we've seen our parents and grandparents living off of pensions that supplemented Social Security (which is often not enough to live off of). But I'm here with some good news: You can duplicate the security of a pension -- at a cost, of course. You can buy yourself income for life.
I'm talking about immediate lifetime annuities, which are offered by many insurance companies. You pay a big lump sum upfront, and then you receive a set sum for the rest of your life. There are some variations to this, of course. You may, for example, elect to receive payments for just a certain number of years. You may elect to include payments for a surviving spouse. You may opt for inflation-adjusted payments, too. These variations can add to or subtract from the cost of your annuity, and they may be worth it.
Lifetime annuities may not be perfect for everyone, but they can be very useful for many. A Wharton School/New York Life study concluded that "lifetime income annuities are the most cost-effective and secure asset class for generating guaranteed retirement income for life."
Running the numbers
Note that, of course, plunking down $400,000 will offer you twice as much income, and you'll pay more or less depending on your age, gender, location, and so on. You might also get a good deal by buying an annuity now that begins payments in 10 or 15 years.
Hold on ...
Also note that you might get a better deal when interest rates are higher, as they're likely to be, eventually. So if you don't need to buy right now, it might make sense to wait a bit, or to space out several purchases.
Regardless, be sure to learn more before you sign anything. You don't get your money back in these deals, except perhaps if you pay a penalty. You'll have money to live off of, but your heirs won't benefit from it.
Below are a handful of stocks that have earned four or five stars (out of five) from our CAPS investment community and that sport dividend yields of more than 3%. Imagine a $200,000 portfolio with $25,000 invested in each. The table below shows you what you can expect to receive in dividends from them this year: