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The bottom line is that annuities may be seen as a full or partial solution, since they can offer stable, predictable income payments, but they're not right for everyone.

These are just a few of the options worth considering--there are many more. You should not invest in any of these options without a full understanding of the advantages and disadvantages the option offers, as well as an understanding of how any earnings are taxed.

Before investing in a mutual fund, carefully consider the investment objectives, risks, charges, and expenses of the fund. This information is available in the prospectus, which can be obtained from the fund. Read it carefully before investing.


Investment Considerations

A well-thought-out asset allocation in retirement is essential. But consideration must also be given to the specific investments that you choose. While it's impossible to discuss every option available, it's worth mentioning investment choices that might have a place in the income-producing portion of your overall investment strategy.


An annuity is a contract between you and an annuity issuer (an insurance company); in the most general terms, you pay money (a premium or premiums) in exchange for the issuer's promise to make payments to you for a fixed period of time or for the rest of your life. Annuities are able to offer something unique--a guaranteed income stream for the rest of your life or for the combined lives of you and your spouse (although that guarantee is subject to the claims-paying ability of the issuer). In return for this guaranteed income stream, you generally give up control of your funds, so annuities are not as liquid as other investment options; you get a fixed income, but you may not have the ability to withdraw extra cash if you need it. But some annuities have riders that can be added for a fee, which provide for lifetime income while retaining access to principal. Annuities often do not provide as great a potential return as other investment options--especially when fees and expenses are factored in.


A bond portfolio can help you address investment goals in multiple ways. Buying individual bonds (which are essentially IOUs) at their face values and holding them to maturity can provide a predictable income stream and the assurance that unless a bond issuer defaults, you'll receive the principal when the bond matures. (Bear in mind that if a bond is callable, it may be redeemed early, and you would have to replace that income.) You also can buy bond mutual funds or exchange-traded funds (ETFs). A bond fund has no specific maturity date and therefore behaves differently from an individual bond, though like an individual bond, you should expect the market price of a bond fund share to move in the opposite direction from interest rates.

Dividend-paying stocks

Dividend-paying stocks, as well as mutual funds and ETFs that invest in them, also can provide income. Because dividends on common stock are subject to the company's performance and a decision by its board of directors each quarter, they may not be as predictable as income from a bond. Dividends on preferred stock are different; the rate is fixed and they're paid before any dividend is available for common stockholders.

Other options worth noting

  • Certificates of deposit (CDs)-- CDs offer a fixed interest rate for a specific time period, and usually pay higher interest than a regular savings account. Typically, you can have interest paid at regularly scheduled intervals. A penalty is generally assessed if you cash them in early.
  • Treasury Inflation-Protected Securities (TIPS)-- These government securities pay a slightly lower fixed interest rate than regular Treasuries. However, your principal is automatically adjusted twice a year to match increases in the Consumer Price Index (CPI). Those adjusted amounts are used to calculate your interest payments.
  • Distribution funds- Some mutual funds are designed to provide an income stream from year to year. Each fund's annual payment (either a percentage of assets or a specific dollar amount) is divided into equal payments, typically made monthly or quarterly. Some funds are designed to last over a specific time period and plan to distribute all your assets by the end of that time; others focus on capital preservation, make payments only from earnings, and have no end date. You may withdraw money at any time from a distribution fund; however, that may reduce future returns. Also, payments may vary, and there is no guarantee a fund will achieve the desired return.



Broadridge Investor Communication Solutions, Inc. does not provide investment, tax, or legal advice. The information presented here is not specific to any individual's personal circumstances. To the extent that this material concerns tax matters, it is not intended or written to be used, and cannot be used, by a taxpayer for the purpose of avoiding penalties that may be imposed by law. Each taxpayer should seek independent advice from a tax professional based on his or her individual circumstances. These materials are provided for general information and educational purposes based upon publicly available information from sources believed to be reliable—we cannot assure the accuracy or completeness of these materials. The information in these materials may change at any time and without notice.