In recent months I have had dozens of retirees ask me if I think an annuity is better than real estate, or timber better than an annuity, or farmland better than traditional real estate. My answer is always the same… "Depends how you define better."

Obviously, one of the most important financial goals during retirement is income. People today are waking up to the realization that the chances of comfortably retiring on social security benefits is a thing of the past. The cost of living increases over the past decade have been significant, and if the trend continues (which I believe it will), then making sure you have other income sources becomes a major priority.

In the United States an annuity contract is created when an insured party, usually an individual, pays a life insurance company a single premium that will later be distributed back to the insured party over time. Annuity contracts traditionally provide a guaranteed distribution of income over time, such as fixed payments, until the death of the person or persons named in the contract or until a final date, whichever comes first. However, the majority of modern annuity customers use annuities only to accumulate funds free of income and capital gains taxes and to later take lump-sum withdrawals without using the guaranteed-income-for-life feature.

Owning timberland or other agricultural farmland is a real estate play. I try to help my clients to think of owning hardwood trees and/or coconuts trees in the same manner they would if they owned a rental condo or vacation rental property.

The idea when buying rental property is generally to achieve a certain regular income from the rents, and hopefully gain some appreciation from the real property itself over time. The same principle applies to timberland and other productive farmland.

Growing coconuts for example can provide an owner with annual crop production usually starting in year four (4) and continuing for an additional 50+ years. Owning a varied combination of hardwood trees can do the same when one incorporates a laddered planting and harvesting strategy. Unlike traditional real estate, that is vulnerable to booms and crashes (as we saw most recently during 2001 – 2008), farmland values steadily increase in line with population growth verses available arable land – which is decreasing globally.

US investor Jim Rogers outlined his view on where the world's next financial boom will come from in the Economic Times in 2011. A well-regarded financial author and a co-founder of hedge funds with billionaire financier George Soros, Rogers is extremely bullish on food.
"Agriculture is going to be the big thing in the next 20 years," he said. "The best thing you can do is to become a farmer - that is where the money is going to be made. Farmers are going to be driving [Lamborghinis] in the next 20 years, stockbrokers are going to be driving taxis."

Legendary investment manager Jeremy Grantham, of G.M.O. funds, with more than $100 Billion under management call timber "The only low-risk, high-return asset there is." In a newsletter to the funds investors he stated "timber will outperform all other asset classes during the next seven years."

I don't think the question should be which is better… real estate, timber, annuities, or agriculture. I think it really depends on what your goals are and what you are trying to accomplish. If you can take the time to clearly identify these things, then I believe it is easier to learn which asset classes will best bring you what you're trying to accomplish.

It may well be that holding each of the examples in a balanced way is better! Simply placing a large sum in an annuity may or may not be correct. Buying a bunch of rental condos somewhere may or may not be right, just as owning timber or other agricultural crops might be.

One thing we shouldn't ignore when making financial decisions is the changing times we now live in, and what they might look like during the next few decades as we age and need that income source.

Jim Rogers has said, "Anything to do with agriculture – seeds, tractors, fertilizer, water – is going to be extremely profitable over the next 20 years."

I tend to agree and therefore feel a sensible balanced approach in all of this article's titled asset classes may not be a bad way to go.