$840,000: Dividends or an Annuitiy?

Investors often face a tough decision when it comes to managing their nest egg. One option is to invest in dividend-paying stocks, while another is to purchase an annuity that provides guaranteed income for life. In this article, we'll explore which approach generates more monthly income from a $840,000 investment.

Dividend-paying stocks offer the potential for long-term growth and regular income. According to the source, conservative-tier dividend-growth names like Coca-Cola (KO) and Johnson & Johnson (JNJ) currently yield around 2.3% and 1.9%, respectively. A blended portfolio of these types of stocks could generate roughly $29,400 per year in annual dividends, or about $2,450 per month.

However, the dividend-growth tier also includes higher-yielding stocks like Realty Income (O), which pays monthly and yields around 5.2%. Blending this tier near 5.5%, a portfolio of these types of stocks could produce roughly $46,000 per year in annual dividends, or about $3,850 per month.

On the other hand, annuities provide guaranteed income for life but come with trade-offs. According to the source, a single-premium immediate annuity purchased at 65 years old with no inflation rider could generate roughly $5,250 to $5,600 per month in annual payments. However, this approach comes with some significant drawbacks, including the loss of principal and potential for inflation.

One possible compromise is to split the investment between an annuity and a dividend portfolio. This approach would allow investors to guarantee a certain level of income while still preserving principal and potentially earning long-term growth.