Retirement Income Alternatives for Those Who Avoid Annuities
A 58-year-old seeking reliable retirement income without annuities has options. A TIPS ladder is one strategy worth considering.
Investors approaching retirement who distrust annuities are not without options for generating dependable income, financial planners say. For a 58-year-old looking to reduce portfolio risk while securing steady cash flow, alternatives exist that can replicate many of the income-stabilizing benefits annuities provide.
One of the most frequently cited strategies is building a Treasury Inflation-Protected Securities ladder, commonly known as a TIPS ladder. This approach involves purchasing TIPS bonds with staggered maturity dates, so that a set amount of inflation-adjusted principal is returned each year throughout retirement. Because TIPS are backed by the U.S. government and indexed to inflation, they offer a degree of income predictability that can serve as a functional substitute for the guaranteed payouts annuities promise.
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For investors seeking to shift their portfolios in a more conservative direction as retirement nears, a TIPS ladder can achieve a similar risk-reducing effect to an annuity without surrendering control of the underlying assets. Unlike an annuity, where the investor typically hands capital over to an insurer permanently, a TIPS ladder keeps assets in the investor's name and allows for some flexibility if circumstances change.
The tradeoff is that a TIPS ladder requires careful construction and ongoing attention to ensure the bond maturities align properly with anticipated spending needs. Investors must also account for the fact that TIPS interest payments are subject to federal income tax even before the bonds mature — a quirk sometimes called "phantom income" that can complicate cash-flow planning in the years before full retirement.
For anyone navigating these decisions at 58, consulting a fee-only financial advisor familiar with fixed-income strategies may help determine whether a TIPS ladder, a partial annuity, or a blended approach best fits individual goals and risk tolerance. Continue reading at MarketWatch.com
