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A Choice for a Steady Income Stream

When planning for retirement, investors shouldn’t ignore annuities, which can provide good benefits, particularly if bought from low-cost, well-established providers.

Annuities differ from standard stock and bond investments in that they combine insurance features with those of standard investments. Most life annuities provide a reliable stream of income for the duration of your life, and some can help you to reduce or transfer the risk of investing in the market for part of your portfolio to an insurer.

Annuities can also give you a way to systematically turn savings into income. It might look complicated, but it could be an important step when managing your retirement portfolio.

These savings products come in many flavors, including deferred and immediate. As the term suggests, “deferred” means that one buys an annuity early, or invests over a period of time, usually intent upon collecting income in retirement, for the duration of one’s life. Similarly, “immediate” usually means that one purchases a product and starts collect income immediately. Prospective retirees often buy such vehicles shortly before they stop working.

Beyond that, investors can buy lifetime or joint lifetime annuities (to last for one’s lifetime, or the lifetimes of oneself and spouse) in a wide array of asset classes, both fixed and variable. The former pays a fixed amount over the life of the annuity. “Fixed” refers to the period of payment, not the annual payout, which could increase at a given rate or rise (or fall) in sync with inflation. The latter provide an insurance wrapper around a mutual fund or funds and typically promises to pay a fixed amount each period, with the potential to increase if the underlying assets perform well.

Annuities are structured as pseudo-insurance income vehicles, but managers can build them to provide income via any number of flavors, through fixed income securities actuarially calibrated to pay at a fixed rate over an estimated period, or through fixed income or equity investments that pay variable income rates—whose principal value fluctuates, much as do those of mutual funds—according to the market value of the underlying bond or stock holdings, or some balanced combination of the two.

One big advantage of such annuities: they let you invest for retirement in a tax-deferred vehicle without a federally mandated ceiling on annual contributions. Theoretically, the sky could be the limit on annual contributions, though we don’t necessarily recommend that.

The funds invested compound annually with no federal or state income tax bills on any capital gains or accumulating dividends. Investors can thereby obtain greater accumulations in annuities than in taxable investments.

Furthermore, investors have a choice of how they cash out. They can take lump-sum distributions from the annuity without penalty after age 59½, although many retirees prefer to establish guaranteed payments to establish a steady income stream for a specific length of time or for life. The idea: complement one’s retirement income from pensions, IRAs, 401(k)s and, of course, Social Security.

Additionally—a very big point—usually a lifetime annuity guarantees that a person does not outlive its income. Immediate fixed annuities provide pension-like income, which will keep paying for the investor’s lifetime. Variable annuities provide a guaranteed stream of lifetime income at retirement; one can “annuitize” payments, or often purchase an optional rider for guaranteed lifetime withdrawal benefits (GLWBs), for added income protection. The latter feature can add guaranteed minimum income, regardless of market fluctuations.


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Obscure Tax Law Forces This Company to Pay Out 90% of its Profits

A 50-year-old loophole is forcing one company to pay out $9 of every $10 it makes from ironclad contracts with the U.S. Government.

In fact, over the past seven years, it’s made payments ranging from a few dollars… to tens of thousands of dollars… 30 times. Without a single cut! 

Most folks don’t even know this company exists, but the ones that do are making a mint.

Like Ted B., who’s set to receive a check for $1,096 just a few days from now.

Merrill H., a 58-year-old from New York, has collected over $3,385 so far. 

And retirees Beth and Terry P. have raked in $16,555.

I’ve put together a special report that will give you all the details, including simple instructions on how to get your name on the payout list before the next cutoff date.

You can get your copy here.

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