Fixed Income vs Guaranteed Income: Which is Right For You?

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Fixed income provides regular payments but may not last your entire life. On the other hand, guaranteed lifetime income, from annuities, ensures payments for life.

In this video, we will explore fixed income vs guaranteed income to help you choose the right option for your financial security.

Summary

Fixed income investments, while stable, do not guarantee lifelong payments, unlike fixed annuities which provide guaranteed lifetime income for retirees.

Multi-Year Guaranteed Annuities (MYGAs) offer predictable, tax-deferred income growth, making them attractive for conservative investors seeking stability in retirement.

Income riders can enhance annuities by ensuring reliable lifetime income, taking into consideration market fluctuations and the need to maintain purchasing power.

Fixed Income vs Guaranteed Lifetime Income

Fixed income investments, such as corporate bonds, individual bonds, and treasury bills, are debt instruments that pay interest and return the principal at maturity.

These investments provide a steady stream of income, which can be beneficial for budgeting and financial planning.

Fixed income products are generally considered less volatile and more conservative than equities. However, they do not guarantee continuous payments for life, which can affect long-term financial security.

In contrast, a fixed deferred annuity with a guaranteed lifetime withdrawal benefit provides certainty on the amount of income that can be drawn for life.

This fixed annuity guaranteed lifetime income offers the peace of mind that you won’t outlive your savings.

While variable annuities carry more risk and depend on market performance, fixed annuities offer stability and predictability, making them an attractive option for those seeking a predictable stream of retirement income.

Contractual Lifetime Income vs Fixed Income for a Set Period

Contractual lifetime income guarantees payments for the duration of a person’s life, providing security against the risk of outliving one’s savings.

Income annuities can be structured to provide payments for a lifetime or a set period, depending on the policyholder’s choice.

This flexibility allows retirees to tailor their income streams to their specific needs and financial goals.

On the other hand, fixed income typically pays out over a specified period of time, which may not extend throughout the rest of your life. This creates a risk of exhausting funds if the retiree lives longer than anticipated.

When building a retirement income portfolio, consider whether lifetime income or fixed income for a set period better suits your financial goals and expected lifespan.

Investment Options for Generating Income

Various investment options can generate income, providing different levels of return and risk. Bonds, for instance, are debt securities that offer periodic interest payments and return the principal at maturity, making them a reliable source of fixed income.

Money market funds, focusing on short-term debt instruments, provide lower returns but are considered low-risk investments.

Real Estate Investment Trusts (REITs) offer liquidity by distributing rental income to investors and trade on stock exchanges. Exchange-Traded Funds (ETFs) allow investors to participate in a diversified portfolio, combining the benefits of mutual funds with stock-like trading features.

Each of these options has its own advantages and can be suitable for different parts of a retirement income portfolio, depending on individual risk tolerance and income needs, as it reduces risk and offers a lower risk.