retirement income
Articles to do with selecting and management of sources of retirement income
Split Annuity Taxation
An investment’s return is what most people analyze each year. However, what really counts is how much you hold on to after taxes. After all, that’s what you get to spend. If you’re shopping around for CDs, you may want to look at an alternative idea that will let you keep more of what you earn. Suppose that you are considering a five-year jumbo CD. The certificate’s earnings may push your provisional income over the government’s threshold (provisional income is the income calculated by IRS to determine if and how much of your Social Security income becomes taxable). The result is that more of your Social Security check will become taxable when you add interest from CDs. The solution could be an immediate annuity that will pay you an income for five years (five-year certain). Part of that income will be taxable, while the rest considered a tax-free return of your investment. At the end of five years, the payments stop. To replace the funds you put into the immediate annuity, you would invest in a five-year fixed annuity. Interest earnings on the fixed annuity are tax-deferred, and not counted towards the government’s threshold of taxation of Social Security income. The [...]
Categories: retirement income Tags: annuity tax, annuity taxation, split annuity
How Safe are Fixed Annuities?
Safety is a relative term because what is safe to one person is risky to another. For instance you may consider a U.S. Treasury bond one of the safest investments since it is backed by our government. But a true skeptic might say, “Suppose the U.S. government went belly-up? The bond could then be worthless.” Or he might argue that the government’s unabated printing of money will debase our currency making dollar investments worthless. Yes, he could have a valid point. However, putting the extremes aside, safety is one of the top reasons that people buy fixed annuities. There are several independent rating agencies that regularly assess the financial strength of insurance and annuity companies. Included are A.M. Best, Duff & Phelps, Moody’s, Standard & Poor’s, and Weiss Research. These firms will give you an evaluation of a company’s balance sheet strength, operating performance, and ability to meet ongoing obligations. In addition, all companies must follow the “legal reserve system.” This is a set of rules on asset management, accounting, and reserve requirements. The reserve requirements assure that funds are set aside specifically to protect against an insurance company’s portfolio losses. Furthermore, insurance companies are state regulated. And all 50 [...]
Categories: retirement income Tags: annity guranatee, annuity guarantee, annuity guaranty, annuity safety, how safe are annuities
Three Sources of Senior Citizen Retirement Income
Do you want to be a dependent senior citizen? You likely are according to this conclusion by the Economic Policy Institute, “For the typical person approaching retirement, the value of expected future Social Security retirement benefits represents the largest single source of wealth.” While this may be true, it’s a situation you don’t want to be in–dependent on the government and its political whims to determine your level of senior citizen retirement income. The more you can control and rely on your other sources of retirement income, the more independent you will be. Let’s discuss the ways in which you become independent with respect to your senior citizen retirement income. If you have a home, use a reverse mortgage when you need it. Most seniors are simply ignorant about how reverse mortgages work and then act out of ignorance. The other option is to find out how they work. A revrse mortgage simply allows you to tap the equity in your home as an income source. Right now, your home equity earns nothing, 0%. Would you keep money in the bank at 0%? Of course, when you die with a reverse mortgage, the equity in your home will be reduced [...]
Categories: charitable gift annuity, immediate annuities, retirement income Tags: senior citizen retirement income
Financial Worries? Some Solutions for Seniors
Do you find yourself worrying about your finances? While you may think of your situation as unique, you may in fact be among the majority of seniors wtih financial worries. A recent survey by the publishers of Senior Market Advisor Magazine revealed several seniors’ responses to the question “How much do you worry about money?” A little 45% More than I should 27% A lot 20% Keeps me up at night 5% Never 3% Source: Senior Market Advisor, Senior Survey 2005 (July 2005) If the same poll were taken today, there would likely be many more who answer that financial worries are at the top of their worry list. Notwithstanding these statistical findings, financial worries do not have to control you. A more secure retirement is possible, with smart and prudent financial planning solutions to these common retirement worries: Retirement Savings Shortfall Upon reaching retirement, some seniors are surprised to discover that their retirement savings will come up short–an obvious source of financial worry. Instead of pursuing leisure activities, they find that they must curtail their spending habits in order to make their savings last. However even in retirement, you can put your savings to work for you with [...]
Categories: immediate annuities, retirement income Tags: annuitize, financial worries, financial worry, immediate annuity, retirement income
Use a Split Annuity Strategy for More Income
As a retiree, you may have Social Security income and some pension income too. But you may want an additional but assured income to round out your financial planning for retirement. You have some investment money you can generate income with but you are leery of losing your principal because you may have to rely on that income for a long time. What is an appropriate strategy for generating income but preserving your principal? You could use a certificate of deposit (CD). It is federally insured. The interest rate you will get depends on how long you tie up your money in the CD. A longer term CD typically produces a higher rate. CD’s are conservative securities representing the lower region of interest rate offerings. Nevertheless, at, say, 5% interest you can take $5,000 per year and preserve your $100,000 principal. This interest income is fully taxed and you would be left $3,300 with under a 28% tax bracket. Let’s try a better strategy… A strategy that can give you more income–and will also tie your money up for while–uses a Split Annuity. Actually a Split Annuity is not an annuity policy. It is simply a combination of two annuity [...]
Categories: retirement income, split annuity Tags: increase retirement income, split annuity
Will a 1035 Exchange to Get a Better Retirement Annuity?
You can exchange one retirement annuity for another, but you as a retiree need to watch out for what you may lose in the process. Often when you have one investment and see a similar but better version of it, you wonder if you can ‘upgrade’ to the new and improved version. Generally, whenever you liquidate an investment or retirement annuity, you need to pay taxes on any gain. If you buy another investment, your cost of the new investment will be its tax basis until it is sold in the future to determine gain. However, in the case of two retirement annuities of ‘like kind’, the U.S. tax code, section 1035, allows you to simply exchange the two ‘like kind’ contrcats–if circumstances allow–so as not to have to pay tax until the latter investment is sold or pays out. In the case of retirement annuities, you need to be aware of what/how your ‘new and improved’ annuity may be different from your ‘old’ annuity. Section 1035 allows you to exchange an existing annuity contract for a new annuity contract without paying any tax on the income and investment gains in your current retirement annuity. These tax-free exchanges, known as [...]
Categories: 1035 exchange, retirement income Tags: 1035 exchange
Immediate Annuities – a retirement income tool
Stability and safety are important to many seniors, and these are only two of the reasons why immediate annuities are popular retirement income choices. A check arrives every month and part of the annuity income is considered a tax-free return of your principal. As long as the immediate annuity company is financially sound, the payments will continue for the life of the contract (annuities are guaranteed by the claims-paying ability of the issuing company). You can get an estimate of monthly income using the immediate annuity calculator. However, consumers sometimes believe that immediate annuities are illiquid, irreversible investments, and cannot provide for future lifestyle changes. Nonetheless, there are some immediate annuities with options that may add flexibility to your financial plan. Immediate annuities can possibly include an option that would allow you to receive extra cash at specific anniversary dates. For example, this might be at the 5th, 10th, or 15th anniversary of your investment. Exercising this option will reduce your current payments (the distribution may be fully taxable, so consult with your tax professional). Suppose you needed money to cover an emergency, like paying for caregivers or a home repair. Some immediate annuity companies will let you take up to [...]
Categories: immediate annuities, retirement income Tags: immediate annuities, immediate annuity, lifetime income
Annuities Explained
Annuities are term deposits with insurance companies. They are similar to certificates of deposits at the bank (note: bank deposits are FDIC insured while the issuing insurance company guarantees annuities). There are two types of annuities: fixed and variable. Fixed Annuities Explained Fixed annuities have these general features: • Your principal is guaranteed by the claims-paying ability of the insurance company; it will never decline. • The insurance company adds interest to your deposit each year. • The annuity is for a specific term that you select. Generally, the longer the term, the higher the interest. • All interest is tax deferred (you do not report it on your tax return) until withdrawn. • You may withdraw 10% of your balance annually. • If you withdraw more than 10% during the term, you will pay withdrawal penalties (called surrender charges). Most fixed annuities offer an initial one-year rate and then the rate changes each year. A few companies offer a locked-in rate for the entire period (called multi-year gaurantee annuities). Another type of annuity is called a variable annuity. Variable Annuities Explained With this type of annuity, rather than receiving interest from the insurance company, your money is invested in [...]
Categories: retirement income Tags: annuities explained, annuity calculator, supplemental retirement income
