Let's work up the ladder of rates that you can get from guaranteed retirement income sources. We skip treasury securities because bank deposits pay more and they also have a federal guarantee (up to $250,000 per depositor through 12/31/2013)
Bank Certificates of Deposit – in terms from 3 months to 5 years. Generally, the longer the term, the higher the rate. Interest is available monthly for a guaranteed retirement income or can compound. FDIC insured. Rates available daily across the US at bankrate.com. One year CD is 4% at most banks as of 10/28/08. After inflation and taxes, you actually lose money. Therefore, holding large sums for long periods in CDs is financially foolish.
Annuities—guaranteed by the issuing insurance company, safest companies rated AAA by Standard and Poors. Large companies like Prudential and New York Life actually lent money to the US Government during the depression so deposits with them are pretty safe. Use deferred annuities (paying 5% or so) if you don't need the income or immediate annuities if you need the income (often called retirement annuities). A 70 year old male can get $769/month for life on a $100,000 deposit (equal to a 9.2% cash on cash return). Payments end at death and nothing is left. Some immediate annuities provide a feature for payments to heirs in case of early death.
Federally Backed Mortgage Notes—Although you've heard a lot in the news about Fannie Mae and Freddie Mac, the US government has backed their securities 100% giving them AAA safety. The same goes for Ginnie Mae Securities. Your money gets loaned for mortgages and the government agency guarantees your investment. At 15 years, rates approximately 6%. Actual term is uncertain as people can pay off their mortgages early. Income is monthly.
Municipal bonds—a source of guaranteed retirement income from cities, states or municipal districts. Buy those rated AAA for best security. Income is paid twice annually. Or, for another idea of guaranteed retirement income, build a ladder of zero-coupon municipal bonds. Interest and principal is paid all at once at maturity. Example: male age 52 buys $75,000 face value of municipal bonds to mature starting at age 62 and for each year thereafter for 20 years to provide $75,000 of tax free income annually. Cost today of each bond averages less than 40 cents per face value. Yields of 6% tax free currently.
Corporate bonds and preferred shares can be are a reliable source of guaranteed retirement income from corporations. Again, for safety, buy those that are highly rated, at least A. Some opportunities to get 8% at the current time. Bonds pay interest twice annually and preferred shares pay dividends quarterly. Dividends from preferred shares qualify for a reduced 15% income tax to help with tax planning.
Diversify amongst these guaranteed sources of retirement income and enjoy a more comfortable senior citizen retirement.