Fund Your Retirement Dreams Through Annuities

When it comes to funding your retirement dreams, it’s important to look at all available investment options and then structure a portfolio that provides regular income for as long as you’ll need it. Annuities could be a good option, but how do you know how much to allocate to annuities as compared with other investments?

As you know, creating a portfolio usually involves allocating assets to a mix of stocks (so your assets can keep pace with inflation) and bonds (so you’ll have a steady income stream). You’ll probably also want to have some cash on hand, and you may want to consider an investment in annuities.

To decide how much to allocate to an annuity, you could consider it a part of your bond allocation. That’s because allocating some of your nest egg to an immediate annuity creates a stream of income you can’t outlive, helping you overcome “longevity risk” – the risk that you’ll run out of money before you die.

Ask yourself what you think the stock market will do, and decide what your tolerance is for investment risk. Also consider whether you’re likely to burn through your assets earlier than you’d planned.

A significant allocation to an immediate annuity might be a good option under the following conditions:

·         When the stock market appears to be peaking or in the      

            early stages of a decline

·         When your tolerance for investment risk is low

·         When there’s a high probability you’ll exhaust your assets

           earlier than you wish.

Annuity guarantees rely on the financial strength and claims-paying ability of the issuing insurer.  The IRS may also impose a 10% penalty on withdrawals prior to age 59 ½, depending on the circumstances.

Buy Diapers and Soap… With Your Smart Phone

Their goal is nothing less than reshaping the retail industry. And with the growing popularity of smart phones and other mobile computing devices, tech-savvy retailers may wind up doing just that.

Whereas previous generations thought of shopping as requiring a trip to the local mall, buyers in recent years have become increasingly comfortable making their purchases online: letting their “fingers do the walking” via keystrokes on a computer. But now, e-commerce innovators – such as the online drugstore Well.ca – are taking that idea one step further.

By strategically locating so called pop-up stores in key commuter hubs, retailers are finding new ways to bring goods to shoppers. Using their smart phones, busy commuters simply scan the quick response (QR) codes (those black-and-white square patterns you’re seeing everywhere these days) on images of products, such as brand-name diapers or detergent, to place their orders. Purchases are delivered to their homes as early as the following day.

Shopping by smart phone while on the go may be a relatively new notion for many, but the appeal of such a system is obvious. With the ease of pressing a button on their pocket-sized device, time-pressed commuters can cross off items on their to-do lists that otherwise would have required a far more time-consuming trip to the local store.

And with PC World reporting earlier this year that smart phones “are already more popular than PCs,” such e-commerce innovations are sure to be around for a long time.

You Can Defer Taxes by Purchasing an Annuity

A major benefit of choosing an annuity as a retirement savings vehicle is tax deferral, which is simply the means by which the payment of taxes on certain assets can be delayed until some future date. Here’s why tax deferral can be beneficial.

Tax-deferred assets, such as investments in annuities, grow untaxed, meaning that interest earned on the investments in the annuity appreciates until they are withdrawn.

That’s called compounding. Compounding is the process by which the money you make from an investment can be reinvested to make even more money. As a hypothetical example, let’s say you have invested $10,000 and it earns interest of 10% per year. In the first year, you will earn $1,000 in interest. But in the second year, you will earn $1,100 in interest. Why? Because not only does your initial investment of $10,000 accrue interest, but so does the additional $1,000 you earned in the first year.

Because your investment isn’t reduced by income taxes every year, you experience potentially higher overall returns in your annuity’s accumulation phase.

It’s also important to note that through tax deferral you may receive a lower tax rate upon withdrawal. Since you probably will not withdraw the assets you’re accumulating in your annuity until later in life (when you may be in a lower tax bracket), you also may minimize the taxes you have to pay when you withdraw your investment.

Your advisor can help you determine if an annuity is a good tax-deferred investment vehicle for you.

The legal and tax information contained in this article is merely a summary of our understanding and interpretation of some current provisions of tax law and is not exhaustive. Consult your legal or tax counsel for advice and information concerning your particular circumstances. Neither we nor our representatives may give legal or tax advice.