BizNet OnLine Magazine, Mr. Money Know' s, A Guaranteed Income for Life. Really!

Mr. Money - Know' s
By: Dana Goldfarb
Financial Writer
dana@biznetonline.com

A Guaranteed Income for Life. Really!

If someone were to tell you that there’s a good chance you could spend as much time in retirement as you do in the workforce, one of your first reactions might be to think up a few more hobbies to get involved in. Then the reality reaction will hit you; "how the heck am I going to pay for this long life?"

One of the best ways to secure your future is to set aside a portion (as much as possible) of your current income today and allow it to grow on a tax-deferred basis. In most cases an IRA, 401(k), 403(b), SEP-IRA, or Keogh-type plan should provide the foundation for your retirement plan. I’ve made a point to mention this in past articles. I’ve probably mentioned it ad nauseum. But there’s a way to pack even more money away; it’s called a tax-deferred annuity.

A tax-deferred annuity is a contract issued by an insurance company, and like other tax-favored investments, it allows your money to grow on a tax-deferred basis. It’s deferred until the money is withdrawn-most likely during retirement, when you may be in a lower income tax bracket. The tax deferral lets more money remain in the investment to compound, helping it grow faster.

You have the option of making a lump sum payment or a series of payments to purchase the contract. And you don’t have to be working to contribute to the investment either. It also means that you can put in as much, or as little, as you want. Even though the contract is issued by an insurance company, there is no physical examination required. In fact, if you’re in your mid-80s, or younger, and you can fog a mirror, you can own an annuity.

Not all annuities are the same, though. Some of them offer a fixed, guaranteed rate of return. You can think of them as tax-deferred CDs. Others are variable; they offer a selection of professionally managed stock and/or bond portfolios whose rates of return will vary based on the performance of the underlying investment. In other words, they’re tax-deferred mutual funds.

With the variable annuity you have the flexibility of transferring between portfolios without incurring any charge or income tax liability. In the fixed annuity, you do not.

Then, when you retire, you annuitize your contract. In other words, you start taking out equal and regular payments. And you keep taking them out until you and/or your spouse die. Even if you live to be 150 (or more), you will continue to get your regular payment.

You see, annuities are specifically designed to address the issue of outliving your retirement nest egg. That’s right, an annuity can offer the guarantee of lifetime income. Guarantee-that’s a word I can’t use very often!

So, my challenge to you is 1) invest in an annuity, 2) annuitize the contract sometime after you’re 59 1/2 (there are penalties if you do it before then, and 3) live to be 150 years old just to beat the insurance company at their own game.

I wish you every success.

Dana Goldfarb is a broker for Sutro & Company In Woodland Hills Ca.
And Can Be Reached At (818) 313-8700

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