Alternatives to Annuities for Retirement Income

Annuities are a popular choice for retirees concerned they might outlive their retirement savings. These retirement savings vehicles work a bit differently than traditional or Roth retirement accounts. Instead, annuities are a type of contract you enter into with an insurance company. In exchange for paying premiums you receive guaranteed payments. The payments typically don’t start for years or even decades, often timed precisely so they coincide with retirement.

A financial advisor can help you determine the right asset allocation for your retirement accounts. 

Alternatives to Annuities for Fixed Retirement Income

Many consider investing in annuities in order to have a fixed retirement income that they can rely on. However, there are pros and cons to consider. Annuities require a lot of money upfront. You have to plan ahead to really maximize your retirement income from an annuity. What makes annuities a good investment for some might not work others. They may look for alternatives to annuities for retirement income for their fixed-income goals. Before you buy an annuity, consider these top fixed-income alternatives to annuities for retirement income. Each has its own advantages and disadvantages, depending on your financial goals and your time horizon before retirement.

1. Certificates of Deposit (CDs)

Certificates of deposit (CDs) are a special type of deposit account offering favorable interest rates in exchange for holding your money for a set time period, such as four or five years. 

Many top banks and credit unions offer CD accounts, allowing you to earn more interest than a traditional savings account. In July 2026, the average interest rate on a traditional savings account is just 0.38%, while the average interest rate for a 12-month CD was 1.68% and a 60-month term earned a 1.36% rate. ¹

While CDs typically do not offer high returns, they still provide a reliable source of fixed, FDIC-insured income. You can also opt to build a CD ladder or deposit smaller amounts of money to multiple CDs with different maturity dates, such as six months, one year and three years. That way, you can reap the benefits of higher interest, but you will not have a large sum tied up for a long time.

2. Bonds

Bonds are a type of debt instrument or a loan that you make to a government or corporation that helps them fund a specific project. In return, the loan recipient agrees to pay back the total principal, or the total amount of bonds you purchase, with interest.

Advisors consider bonds to be a fairly secure investment, although certain high-yield bonds come with more risk for bondholders. Different types of bonds offer different rates of return, though bonds generally provide lower returns than higher-risk investments like stocks. Maturity dates also differ, depending on the bond you buy.

The simplest ways to purchase government bonds are through a brokerage account or the U.S. Treasury. In general, U.S. Treasury bonds are considered fairly safe investments, as they are backed by the federal government. Interest rates for these bonds change every six months, and bondholders receive interest payments twice a year. 

Depending on the type of Treasury bond you choose, your bonds could have a maturity date of 20 or 30 years. You can cash them out after five years without losing any interest, but if you cash them out before then, you will lose three months of interest payments.

Municipal bonds can be an attractive alternative to annuities if you are looking for bonds that generate consistent income with low credit risk. Tax-free municipal bonds may be even better since they are generally tax-exempt. However, remember that municipal bonds do not receive tax-exempt status by default, so check before you buy.

3. Retirement Income Funds (RIFs)

Retirement income funds (RIFs) act as a conservative investment vehicle for retirement. Typically, RIFs are actively managed mutual funds that offer diversified investments in fixed-income assets and equities. They provide regular distributions in the form of interest income or dividends, and they offer the opportunity for asset growth.

While RIFs can provide predictable distributions, these funds tend to offer lower returns because investors consider them conservative, fairly low-risk investments. This predictability makes them attractive to some investors. Income-generating mutual funds offer an alternative to retirement income funds, even ones not specifically designed for retirees. Before you invest, be sure to seek advice from a financial advisor who can help you choose the best option for your financial situation.

4. Dividend Stocks

Dividend stocks are publicly-traded stock that pays a portion of the company’s earnings to stockholders on a regular basis. Typically, only established companies issue dividend stocks because they earn consistent profits each year.

While each company adheres to its own schedule for distributing dividends, they most often pay out on a quarterly basis. This means that retirees who have invested in dividend stocks can expect payments every few months. The total dividend payment you receive will depend on how many shares of the company’s stock you own and your overall dividend investing strategy. 

As with other types of investments, if you are considering dividend stocks for passive income, first talk with a financial advisor about whether a dividend portfolio makes sense for you based on your retirement goals.

5. Real Estate Investment Trusts (REITs)

Real Estate Investment Trusts (REITs) allow investors to invest in real estate without buying or managing property directly. 

REITs own or finance income-producing real estate, such as apartments, warehouses, office buildings and shopping centers. Most publicly traded REITs must pay out at least 90% of their taxable income as dividends, which can provide a steady income stream in retirement.

REITs trade on major stock exchanges, making them relatively easy to buy and sell through a brokerage account. They can offer diversification for your portfolio, since real estate often performs differently than stocks and bonds. However, dividend amounts can vary, depending on property values, occupancy rates and economic conditions.

For retirees seeking income, REITs can be a flexible alternative to annuities. They provide regular payouts and potential for capital appreciation, although they carry market risk like other publicly traded investments. Choosing REITs with a consistent dividend history can help create a more stable retirement income plan.

When an Annuity May Still Be the Better Choice

Each of these alternatives can generate retirement income, but they don’t all provide the same guarantees as an annuity. CDs mature after a set period, bonds eventually repay their principal, and dividends from stocks or REITs can change or disappear. Annuities, by contrast, can provide guaranteed lifetime income if backed by the claims-paying ability of the issuing insurance company.

That difference can matter if your primary concern is running out of money in retirement. An immediate or deferred income annuity can continue making payments for the rest of your life, regardless of how long you live. Most other income-producing investments require you to manage withdrawals and accept the possibility that your assets could eventually be depleted.

The tradeoff is flexibility. Many annuities limit your access to the money you invest and may impose surrender charges if you withdraw funds early. Investments such as bonds, dividend stocks and REITs generally offer greater liquidity, although their income and market value can fluctuate.

Some retirees combine annuities with other income-producing investments instead of relying on a single strategy. For example, an annuity may cover cost of living expenses, while bonds, dividend stocks or REITs provide additional income and the potential for portfolio growth.

The right approach depends on factors such as your retirement income needs, life expectancy, risk tolerance and desire for guaranteed income versus investment flexibility.

Bottom Line

If annuities aren’t a good fit, you can create retirement income with CDs, bonds, income funds, dividend stocks, or a mix of these. They may not offer high returns, but they provide steady income. Each choice has pros and cons, so review them carefully before deciding.

Tips for Retirement Investing

• Whenever you’re thinking about your portfolio with retirement in mind, it’s important to understand the right balance you need for your goals. A financial advisor can help you figure out the right asset allocation for the right time in your retirement journey. Finding a financial advisor doesn’t have to be hard. SmartAsset’s free tool matches you with vetted financial advisors who serve your area, and you can have a free introductory call with your advisor matches to decide which one you feel is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
• It’s important to know where your savings are compared to what you need to hit your retirement goals. You can use SmartAsset’s free retirement calculator to help you see if you’re currently on track.

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