Cash flow in retirement

Cash flow in retirement


What rate of return do you get from your bank account? This question triggered a lot of discussion at a recent event. The answer seems to vary a hundredfold. At the low end, people said they were getting 0 .01%. At the high end, some people claimed they were getting nearly 1.00% So for $100,000, people were getting between $10 – $1,000 per year. In many cases, you still have to pay taxes on those paltry earnings.That is pretty hard to live on that if you are retired.

This is not somebody’s problem. It is everybody’s problem, particularly if you are retired.

When you look for a solution, the most common solution seems to be annuities. Annuities claim that they give you between 5-7% per year, for the rest of your life.

That seems pretty wonderful in today’s climate, but there are two problems. First, they are not giving you a return on your money. In many cases, they are taking your money and giving it back to you … in small doses. Say you invest $100,000 in an annuity and you get back $5,000 per year. After 20 years, you have just got your own money back. Then, if you happen to die, your principal of $100,000 is gone and you got nothing more than your own money back.

Of course, if you live another 10 -20 years, you will come out better, but the problem is that the insurance companies have pre-calculated the probability of how long most people will live and then set the annual returns accordingly … in their favor. They call this the law of large numbers.

The second problem is that you may have to pay taxes on some part of the returns that you get.

There are many different types of annuities, but the basic problem with all of them is that you rapidly lose your principal after you annuitize. This is because of their high fees.

Are there any better and safe solutions to the cash flow problems in retirement? Yes, there are. After I retired, I searched a lot. This is what I found:


  1. Laddered bonds. Both corporate and municipal bonds, give better returns, depending on how far out you are willing to go out in time and what your tax bracket is.
  2. Preferred stocks of solid companies.
  3. Dividend-paying stocks of first-rate companies that are currently selling at attractive prices. I like this option for retirement accounts.
  4. Special dividend paying life policies from mutual companies, that can give safe returns starting at 3% and increasing to 5% over time. While the returns are not guaranteed, they have never had a single losing year in the last 50 years and the returns are tax-free. This is one of my favorites.
  5. REITs (real estate investment trusts) that pay good dividends. Their returns have been between 3-5%. The principal goes up and down with market conditions.
  6. Energy pipeline transport companies are selling at attractive prices and are less risky than oil companies.
  7. Selling put options and covered calls. We are teaching classes on how to do this.
  8. Rental real estate, if you are willing to manage it. I am not.

Of all the above options, I have chosen to spread my risk, by investing small amounts in many of them. Of course, some of these options are better for my temperament than others, but I have sold most of my annuities.

I am not a financial advisor, the purpose of these articles is to educate people on investment issues. I cannot tell you what to do, but I am happy to share with you, what I have done to improve my returns.

I believe nobody can live on the returns that the banks are giving. It does not matter if it is 0.01% or 1.0%.

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