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September, 2010


There are, of course, functions of an annuity which cannot be readily duplicated by the individual investor. It can provide, essentially from day one, a possibly necessary and assured income, beyond what is offered by one's pension or other retirement account and/or Social Security, for as long as the annuitant lives and his/her annuity insurance company remains solvent. There is a cost. The company offering the annuity is in business to make money. Very occasionally such companies also fail to meet their financial obligations. Such considerations aside, an annuity may be worth it for the security-minded retiree. It does not hurt either that annuity income may not be subject to federal estate taxes.

However, annuities may not be right for you. Suppose you are receiving more than your annual income needs through pension(s), 401K distributions, and Social Security. Alternatively, maybe you are of advanced age or have severe medical problems, so that the annuities still available to you would not be cost effective. You may, on the other hand, still be expecting to work at a good earnings level for a number of years more. You may also be an independent investor and confident you can over time achieve a significantly better return than an insurance company can for you. Be careful about this last one: most investors think they are above average. Unfortunately, for some of us this does not compute.

If you find the reasons against outweigh those for an actual annuity but still want reasonably reliable income, there are some practical options.

For example, perhaps after several decades of working, saving, and investing, you have an extra half-million dollars. Your retirement plans plus Social Security provide you with the $60,000 a year you need to live on now, but you are not sure they will continue to do so as inflation eats away at the value of the dollar.

One alternative is to acquire a few rental properties. While real estate prices are depressed, there may be good rental income houses or office buildings in your area. If you are handy, fixer-uppers might be purchased and improved at low enough overall cost that your resultant rents will pay for maintenance, taxes, plus a little extra to keep you ahead of inflation while, chances are, the value of the properties will appreciate long-term as well.

Another is to buy a low-risk group of stocks offering both reasonably safe dividends and good chances for profits. Right now, many Blue Chips and other sound companies are available at prices seldom seen, true bargains among them. Investors apparently are still traumatized by the near financial melt-down of 2008 through early 2009 or are understandably disappointed over the poor performance of stocks during the past decade, a dismal record that I believe has not been equaled since the Great Depression. Yet others may be anxious about a looming double-dip after the just ended recession, or about new terrorist attacks, run-away inflation, deflation, a Japan style mini-depression, national or U.S. state insolvencies, etc.

Yet good corporations are selling now at levels that would seem to discount most such eventualities. Naturally, there are no guarantees, but over the next 5-10 years (and perhaps much sooner) the odds greatly favor stock prices being a lot higher than today. Through careful selection, one can acquire quality equities that will provide "annuity-like" security plus total returns that equal or surpass those from the insurance companies, that match or exceed moderate rates of inflation, and, best of all, that allow one, even after redemptions to maintain one's income level, to still possess some of the assets subsequent to their having served their "annuity-like" purposes, permitting a bonus for one's heirs or favorite charities.

Shown in the table are a dozen such companies whose stocks I believe deserve "annuity-like" portfolio consideration at this time:

& Div.
Royal Dutch Shell ADRRDS/A$58.245.7%0.2969%4.7%
AT&T, Inc.T$28.175.9%0.6878%4.4%
Merck & Co., Inc.MRK$36.334.2%0.3340%3.5%
Conoco PhillipsCOP$55.273.8%0.4034%3.1%
Chevron Corp.CVX$78.463.5%0.1133%3.1%
Pfizer, Inc.PFE$17.064.1%0.5069%2.9%
Intel Corp.INTC$18.813.2%0.0535%2.8%
Johnson & JohnsonJNJ$61.573.4%0.2241%2.8%
Automatic Data Processing, Inc.ADP$41.333.3%0.0156%2.7%
Lincare Holdings, Inc.LNCR$24.103.3%0.5212%2.7%
Raytheon Co.RTN$45.893.0%0.2430%2.5%
ConAgra Foods, Inc.CAG$22.093.6%0.7147%2.4%

As always, I recommend that, before any purchases, the investor check with a trusted financial consultant and/or do careful research on one's own.


Larry is not a professional. Don't take him seriously!

Actually, the investment article provided here is for general information only and should not be considered as professional advice, a solicitation to buy or sell any security, or the Word of God. Investors are encouraged to do their own research while considering their personal goals and circumstances, or consult their own professional financial advisors, before making investment decisions. Neither Larry nor LARVALBUG will be liable for any losses sustained by any visitor to this site.

(Disclosure statement: Larry and Val have holdings in some of the suggested assets but do not "make a market" in any of them and do not derive any direct benefit from recommending them, except perhaps for a bit of smug self-satisfaction.)

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