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
Here are a few examples of what you might expect to receive, derived from an online annuity calculator:

  • A single 65-year-old man in Colorado paying $200,000 can expect to receive around $1,294 monthly in retirement -- which comes to $15,528 per year.
  • A married 60-year-old couple in New Jersey paying $200,000 can expect to receive around $1,197 monthly in retirement -- which comes to $14,346 per year.
  • A married 55-year-old couple in California paying $200,000 can expect to receive around $1,098 monthly -- which comes to $13,176 per year.

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 ...
Of course, things are rarely as simple as they seem, right? For one thing, know that these purchases aren't generally FDIC insured, like your bank account is. So if you buy one, be sure to buy it from an insurance company that you expect to be around for a long time. You might even split your purchase between several companies -- perhaps buying a $100,000 policy from this company and a $200,000 policy from that one.

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.

Another option
If you can handle a little more risk, you might aim to build an alternative source of income, via a bundle of dividend-paying stocks. The main benefit there is that if you can live off the dividends, you can still leave the stocks to your loved ones.

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:


CAPS stars

Dividend yield

Annual payout





ConocoPhillips (NYSE:COP)




Campbell Soup




Duke Energy (NYSE:DUK)








McDonald's (NYSE:MCD)




Altria (NYSE:MO)




NYSE Euronext (NYSE:NYX)







Data from Motley Fool CAPS.

See? That's a significant income right there. Better still, companies tend to increase their dividends over time. If these payouts grow by a very reasonable 7% per year over 25 years, you'll end up receiving more than $50,000 annually at the end of the period. Of course, some of your companies may fall on hard times and reduce their dividends, but others will likely increase their payouts at an even faster clip.

Learn more
Don't despair that a regular income is beyond your grasp in retirement. One way or another, you can make a pension-like income happen. Let us help you.

For detailed guidance on retirement planning, I invite you to test-drive -- for free -- our Rule Your Retirement newsletter service. A free trial will give you full access to asset allocation models, calculators, and all past issues. It regularly offers promising stock and mutual fund ideas, too.

Click here to get started. There's no obligation to subscribe.

Longtime Fool contributor Selena Maranjian owns shares of McDonald's and 3M. Duke Energy is a Motley Fool Income Investor selection. Intel and 3M are Motley Fool Inside Value picks. The Fool sold puts on Intel. NYSE Euronext is a Motley Fool Rule Breakers recommendation. The Motley Fool is Fools writing for Fools.