Ken Nuss

Retirement always seems far off until one day it isn't. Make sure you're giving yourself plenty of time to prepare by investing in the right annuity for you.

 current US tour is being sponsored by the Alliance for Lifetime Income, which provides consumer education about annuities, since one of the Stones’ earliest hits was “Time Is on My Side.”

All the time in the world is still not enough

Time is both the friend and foe of people saving for retirement and in retirement. Annuities work to put time on your side.

When you’re saving up for retirement, time is your friend. But in retirement, time can be your enemy. If you live to an advanced age you could run out of money as expenses and inflation mount over the years. Annuities can provide guaranteed lifetime income so you don’t go broke.

Here’s how annuities can help set you up for a better retirement during the two main stages of your financial life.

When you’re working, you’re in the accumulation phase. This is when you’re saving for retirement. The sooner you start—even if it’s just a small amount—the better.

Tax-deferred accounts, including IRAs, 401(k) plans and similar arrangements are the place to start. But they’re not the complete answer because of annual limits on contributions. Most people need to also save outside of their qualified retirement plans, and that’s where deferred annuities come into play.

While they don’t offer a deduction for contributions, they too defer taxes. For as long as you don’t remove money from the annuity, the earnings won’t be taxed and can accumulate faster. You can contribute as much as you like.

A multi-year guaranteed annuity pays a set interest for a set period of time, usually three to 10 years. You make a single deposit, and there’s no sales charge, so it behaves much like a bank certificate of deposit (CD).

For people who don’t mind a fluctuating interest rate in exchange for potentially higher returns, a fixed indexed annuity can be another good choice. This annuity offers the opportunity to get a good portion of the stock market’s gains while offering complete protection from loss.

It credits interest based on the growth of a market index, such as the Dow Jones Industrial Average or S&P 500, and that’s the reason it’s called “indexed.” But you lose nothing in down years, 

 that’s the reason it’s called “fixed.”

Also called a longevity annuity, this option combines tax-deferral with a guaranteed future stream of income.

It defers payments until a future date that you choose. Most buyers choose to start taking payments when they turn 80 or older. You’ll know the exact amount of monthly lifetime income you’ll receive and the date when it begins.

Unlike other deferred annuities, the variable annuity offers few built-in guarantees. It is like a set of mutual funds within an annuity wrapper that provides tax deferral and optional extra-cost benefit riders. Among annuities, it offers the highest growth potential plus the highest potential risk.

By using one or more of the deferred annuities listed here, you can defer taxes for many years and put the power of tax-deferred compounding to work for you. In other words, you put time on your side.

Eventually, you’ll want to retire. Annuities are the only financial product that can provide a lifetime guaranteed income. They’re basically the opposite of life insurance in that they offer financial protection for living to a ripe old age.

If you bought a longevity annuity, you’ll know exactly how much income you’ll receive.

If you have an existing multi-year, fixed-indexed or variable annuity, you may choose to 

 it. You’ll convert the cash value into a stream of income guaranteed for whatever period of time you choose, such as 20 years or your lifetime—the most popular option.

And you’ll still get tax benefits as each payment will include taxable income and nontaxable return of principal. If you live long enough, eventually the principal will all be returned to you and the income will then become fully taxable. But, by then, you’ll be well ahead of the game.

If you’ve already reached retirement and haven’t yet invested in an annuity, there’s still a way to put time on your side. You can buy an 

With it, you’ll typically start receiving monthly payments within about a month of purchase. Besides providing income that replaces your salary or self-employment income, an immediate income annuity also insures against the risk of living longer than average. As with annuitization, you transfer the risk to an insurance company in exchange for a single premium payment.

Again, you’ll get tax advantages as well because each income payment is partly non-taxable.

For more expert insights into annuities, read on 

Retirement-income expert Ken Nuss is the founder and CEO of 

, a leading online provider of fixed-rate, fixed-indexed and immediate-income annuities. It provides a free quote comparison service. He launched the AnnuityAdvantage website in 1999 to help people looking for their best options in principal-protected annuities. 

More information, including updated interest rates from dozens of insurers, is available at 

The Alliance for Lifetime Income offers retirement-income planning tools at 

Articles

When you're planning to improve your financial future, don't procrastinate. As Mick Jagger also sang, "Time Waits for No One."

Annuity Puts Time on Your Side Ask The Rolling Stones

8% guaranteed on a fixed annuity sounds too good to be true, in most cases it is.

Can you earn 8% on a fixed annuity, guaranteed?  Online ads often make this promise.

Those ads are misleading. They’re not completely false, but they set unrealistic expectations and we often have to talk clients back down to reality.

The truth is complex.  Some annuities do indeed offer an 8% rate guarantee, but there’s a catch. That rate doesn’t guarantee the annuity’s actual return, instead, it guarantees the growth of an income account value created by an optional rider.

It’s not money you can withdraw. It sounds too good to be true, and it is.

Buying a lifetime income rider creates the income account value, which grows at a guaranteed annual rate of 4% to 8%. The income account value is used to calculate the amount of future guaranteed lifetime income payments. Most insurers charge an annual fee of about 1% of the annuity value for this option, typically available with indexed annuities.

That’s why some annuity marketers get away with claiming a misleading 8 percent return. Those ads are usually placed by marketing firms that sell the leads to annuity agents.

The top rate for a five-year fixed-rate annuity is 4.01%, according to 

AnnuityAdvantage’s online rate database

. For a 10-year annuity the rate is 4.31%, and for a three-year guarantee it’s 3.10%.

These are good rates that build savings safely. You don’t need to exaggerate.

Like bank CDs, multi-year annuities offer a guaranteed rate for a set period of time. But they usually pay substantially more interest than bank CDs of the same duration. Another key advantage is that interest is tax-deferred as long as it’s left to compound in the annuity.  

An income rider is a good deal for some people 

It’s unfortunate that some marketers muddy the waters with hype as the income rider can be a worthwhile purchase for some people.

Unlike the multi-year deferred annuities mentioned above, fixed indexed annuities provide an interest rate that varies from year-to-year. They offer a chance to get a good portion of the stock market’s gains while offering complete protection from loss. Principal is guaranteed.

A saver can add another layer of protection with a lifetime income guarantee rider. But it makes sense only if it meets your needs and your strategy. You should feel sure that you’ll use the feature eventually before you decide to use it.

But if you do use it eventually, the income rider can be a wise purchase. It can produce more guaranteed lifetime income at a future date while giving you complete control over your money. Since you don’t set the date for income payments to start when you buy the annuity, you retain planning flexibility.

Normally, when you convert an annuity into an income stream through annuitization, its cash surrender value becomes zero. That’s not the case here. You still own the full value of your annuity.

You can choose any time to start receiving lifetime income. The amount is determined by the income account value along with your gender and age at the time you start receiving payments. Prior to activating lifetime income, the income account value typically grows at a guaranteed annual compounded rate of 4 to 8 percent.

After income activation, annual payments are deducted from the contract value. If that value ever reaches zero annual income payments are still guaranteed for the remainder of your lifetime, but the annuity would no longer have any cash surrender value.

Lifetime income riders vary dramatically from one annuity company to the next. So, shop around and compare.

An income rider is just one way among several to guarantee your future income. Other ways include buying a deferred income annuity or annuitizing a fixed annuity when you retire.

Annuities come in many types and variants that meet a wide variety of needs. It’s smart to shop around. Don’t be put off by misleading advertisements that can cast a negative light on a unique set of retirement-planning tools.

For more personal finace insights, read on 

, a leading online provider of fixed-rate, fixed-indexed and immediate-income annuities. 

It provides a free quote comparison service. He launched the AnnuityAdvantage website in 1999 to help people looking for their best options in principal-protected annuities. 

Ads touting 8% guarantees are misleading, though not quite false. Real rates around 4% range are attractive enough and much more reliable.

How to Spot Misleading Annuity Rates

Making sure you can cast a wide net for your eventual retirement is the safe, and smart, option.

An asset allocation plan means that you set the percentages you put in equities (stocks or stock funds) and fixed income, which includes savings accounts, money markets, CDs, bonds and fixed annuities. Your asset allocation should not change in the short term, but it will change over the years.

As you approach and enter retirement, you’ll normally decrease the percentage in stocks and boost your share in safe investments. Once you’re retired and begin withdrawing your savings, you’ll likely want to become even more conservative. Sticking to your asset allocation also offers many benefits, such as, decreasing excessive risk and preventing you from buying high and selling low.

If and when the stock market falls, you’ll be less tempted to sell everything because you’ll also have a solid cushion of fixed assets that doesn’t fluctuate with the market. Many people without a plan panic and sell their stock funds at exactly the wrong time, when the market is at a low point.

You’ll also be able to resist overinvesting in the stock market when it’s reaching new all-time highs, as it’s been doing this year.  When there’s a bull market, it’s easy to get too excited and forget that what goes up will come down eventually. 

The right asset allocation is ultimately up to the individual. Besides your age and expected income in retirement, your psychology is important. Some people are very risk-averse, while others don’t mind the ups and downs of the stock market too much.

Most people’s financial lives fall into two distinct phases: accumulation and distribution, sometimes called decumulation. When you’re working, you’re in the accumulation phase saving for future needs such as a first home, education for your kids, and retirement.

It’s hard for many people to put aside much in the early years of their working life, but once education and other needs are met, and as you advance in your career, you can ramp up your savings especially by your 50s and early 60s.

Stocks, savings accounts, money markets, CDs, and bonds can all play a valuable role as part of your asset allocation during the accumulation phase. Their characteristics are well known, whereas, the advantages of fixed annuities are less well known.

A deferred fixed annuity is suited for the accumulation phase because you don’t need current income. It defers payments and thus taxes until the distribution phase when you do.  Without the drag of taxes all your earnings can be reinvested and grow faster.

One of the most popular products is the multi-year guaranteed annuity, also called a CD-type annuity. You make a single deposit and then the annuity pays a guaranteed interest rate for a set period of time, usually 3 to 10 years.

There’s no sales charge.  Every dollar you deposit goes to work for you immediately.

Multi-year guarantee annuities often pay substantially more than a comparable bank CD. For example, the highest-paying five-year CD was recently yielding 3.25%, versus 4.00% for the top five-year annuity—a 23.1% advantage over the CD. The top rate for a three-year annuity was 3.10%.

All CDs interest is subject to federal and state income tax annually, even when it’s reinvested in the CD.  Similarly, interest from bonds and money markets is also taxable unless held in a qualified plan such as an IRA. Municipal bonds pay tax-free interest, but municipal rates are lower than other types of bonds.

With a deferred annuity you won’t receive a 1099 and you won’t owe tax on the interest until you withdraw it. At the end of the annuity’s initial guarantee period you may renew it for another term or roll it over into another annuity. 

You can continue to defer taxes as long as you like, until you need the money for retirement or another purpose and withdraw it.

Your principal is guaranteed by the issuing life insurance company. Life insurers are strictly regulated by the states to ensure solvency.  An additional layer of protection is provided by state guaranty associations up to certain limits that vary by your state of residence.

Bond mutual funds are also used in asset allocation to reduce risk.  However, bond-fund share prices vary. You can lose money in a bond fund, especially in long-term funds.

Once you’re retired, you’ll need income from your savings. This is the distribution phase of life. Annuities offer unique advantages here.

If you have an existing annuity, you may choose to annuitize it. That is, you’ll convert the cash into a stream of income guaranteed for whatever period of time you choose, such as 20 years or your lifetime—the most popular option. 

Lifetime income helps assure you won’t run out of money even if you live past 100, it’s longevity insurance without many strings attached.

, a leading online provider of fixed-rate, fixed-indexed and immediate-income annuities. It provides a free quote comparison service.  launched the AnnuityAdvantage website in 1999 to help people looking for their best options in principal-protected annuities.

It's tempting to overinvest in stocks today, but everyone still needs some safe footing from other places. For part of your safe-money portion, fixed annuities offer guarantees, higher rates, and tax deferrals.

Even in a Bull Market You Still Need an Asset Allocation Plan

Fixed indexed annuities offer built in protection, but is that enough?

Fixed indexed annuities have boomed because they offer a chance to get a good portion of the stock market’s gains while offering complete protection from loss. They credit interest based on the growth of a market index, such as the Dow Jones Industrial Average or S&P 500. But you lose nothing in down years.

You can increase the comfort factor by buying additional protection with a lifetime income guarantee rider. Since an indexed annuity is already protecting you from loss, is adding another layer a good idea?

It all depends on your needs, goals and plans.

It doesn't make sense to buy additional protection unless it meets your strategy. Most important, you should feel sure that you’ll use the feature eventually. Otherwise, you're wasting money on something you may not use.

But if you do plan to use it and have a good strategy, the income rider can be a wise purchase.

A lifetime income rider is designed to help generate more guaranteed lifetime income at a future date, while still giving you complete control over the money in your annuity. Since you don’t set the date for income payments to start when you buy the annuity, you retain planning flexibility in the future.

Some marketers call the arrangement a hybrid annuity, but I’m personally not fond of that terminology.

Normally, when you convert an annuity into an income stream through annuitization, its cash surrender value becomes zero. That’s not the case here. You still own the full value of your annuity. The rider guarantees the amount of lifetime income that your deposit will generate in the future.

Most insurers charge an annual fee for this option, usually around 1% of the assets in the annuity. You can choose any time to start receiving lifetime income.

The guaranteed payment amount you will receive for the rest of your life is determined by the income account value and your gender and age at the time you start receiving payments. Prior to activating lifetime income, the 

 typically grows at a guaranteed annual compounded rate of 4 to  8 percent.

What’s a bit confusing is that the income account value and value of your contract are separate. The income account value is used 

 to calculate the amount of your guaranteed income payments.

It is not the same thing as your underlying contract value. It has no cash value and cannot be withdrawn. The contract value has cash value and can be withdrawn.

Take this situation for example; Jane buys an indexed annuity at age 55, deposits $100,000 in it and chooses an income rider. It’s up to her when to start receiving payments.

Ten years later, she decides to start receiving income. In the interim, the income account value has grown at  7.5 percent compounded annually. Starting at age 65, she gets $11,352 a year for the rest of her life.

Meanwhile, supposed she has earned an average of 5% a year (after rider fees) on the separate annuity contract value. The annuity itself is now worth $162,889. Jane is free to let that money continue to accumulate or withdraw part or all of it.

There’s no free lunch. Because of the one percent annual fees, the annuity cash value is significantly less than it would have been without the rider. However, this disadvantage may be more than offset by the guaranteed income.

After income activation, annual payments are deducted from the contract value. If that value ever reaches zero, annual income payments are still guaranteed for the remainder of your lifetime, but the annuity would no longer have any cash surrender value.

If you die before income activation, your beneficiaries will receive the full annuity contract value as a death benefit. If you die after income activation, the income payments will cease and your beneficiaries will receive any remaining annuity contract value. Lifetime income riders vary dramatically from one annuity company to the next. Shop around and compare.

An income rider is one way among several to guarantee your future income, but another way is to just buy a deferred income annuity.

For more personal finance insights, read on 

, a leading online provider of fixed-rate, fixed-indexed and immediate-income annuities. It provides a free quote comparison service.  launched the AnnuityAdvantage website in 1999 to help people looking for their best options in principal-protected annuities. 

AnnuityAdvantage’s Income Rider Calculator page provides an instant estimate of the future income you could expect from a lump sum premium deposit. 

https://www.annuityadvantage.com/resources/financial-calculators/income-rider-calculator

Income riders that guarantee future income have significant pros and cons. Make sure to weigh all your options before adding another layer of protection.

Do you need an extra layer of protection in an annuity?

Retirement offers many options once you get there, just make sure you pick the right one. 

About half of pension plan participants can choose to take their money in a lump sum when they retire. If you have that choice or are offered a buyout, what’s your best option?

Securing guaranteed lifetime payments directly from your company pension plan would seem to be a no-brainer, unless you’re facing a financial emergency. But taking a lump sum and deploying it wisely can give you more control, and sometimes, more income. If you roll over the lump sum into a standard IRA, you’ll defer taxes on the distribution. Without a rollover, you’ll be hit with a big tax bill the year you receive a sizable sum.

A rollover to an IRA can have real advantages. You get more flexibility and can control when you begin receiving retirement income payments and for how long. You can also start taking penalty-free payments as early as 59½ or you can delay them until the year you turn 70½ when you must start required minimum distributions.

But that flexibility doesn’t help much if you can’t generate at least the same amount of secure income on your own. Even if your pension plan has the payout features you want, you should compare the income to what you could get with a commercially available annuity.

Ask your employer for the amount of your lump sum and your monthly payments. Then, get income quotes from an annuity provider representing multiple annuity companies. This will let you make an apples-to-apples comparison.

In some cases, taking a lump sum and rolling that over into an IRA and then purchasing an income annuity will provide greater income. If you can get a payout that’s slightly higher, it can add up to a lot of money if you collect payments for 20 or 30 years.

There’s no magic in a company pension. Pension payments are based on the value of your account and an actuarial determination of your expected lifespan. Gender is typically not considered.

Income annuities act like private pensions. In exchange for a single deposit, the insurance company will provide a guaranteed stream of income. An annuity is based on the same math as a pension, except the insurer 

 consider gender. That can disadvantage women because they are expected to live longer.

You can choose how long the payments last. While most people choose a lifetime annuity, you can choose a set period, such as 15 years, and receive more annual income. This can be a good choice for people who have other income sources kicking in at a future date or who don’t expect to live to an advanced age.

An immediate income annuity offers payments that can start anywhere from immediately to one year after purchase. With a deferred income annuity, you can delay payments for more than one year, and the longer you can afford to delay the greater the annual income will be.

There’s also a comfort factor. How comfortable are you in letting your former employer control your retirement assets for the rest of your life? 

Some people feel more secure receiving a lump-sum rollover to their IRA, rather than leaving their retirement money with their former employer's pension plan. And sometimes there’s good reason for unease, because some pension plans are underfunded. Most pensions are protected by the Pension Benefit Guaranty Corporation, but only up to certain limits. A lump-sum payout transfers the risks associated with investment performance and longevity from the pension plan sponsor to the participant. But you can then transfer that risk to the annuity issuer.

That’s the advantage of an annuity. You don’t need to invest the entire lump sum in an income annuity. If your income needs are met using only a portion of your lump sum, you can split it between an income annuity and a portfolio of mutual funds or indexed and fixed-rate annuities in an IRA. That combination can provide growth potential while also guaranteeing income.

What Are the Differences Between a Traditional IRA and a Roth IRA?

It's hard to look at guaranteed lifetime payments from a company pension plan and think that might not work for you. Yet sometimes, that is the case as every finical situation is unique. So, make sure to weigh all of your options before you decide between a pension or a lump sum IRA.

Pension or Lump Sum? Compare Payouts Before You Decide

Part of your legacy is what you leave behind for those that come after you, and an annuity can make sure your's is secured. 

A trust is one way to leave a legacy, but you’ll need to hire a lawyer to draw it up. And there may be ongoing management fees that will reduce the amount your loved ones will receive. There are simpler, cheaper ways to leave a legacy. For instance, you can buy a cash-value life insurance policy or fund a 529 college savings plan.

But one of the best options, an income annuity, is usually overlooked. It’s an ideal vehicle for leaving a legacy.

An annuity offers unique benefits. It’s the only gift guaranteed to keep on giving for a lifetime. Here’s how it would work for a grandchild. You buy a longevity annuity—also called a deferred income annuity&mdash;for your grandchild. This type of annuity defers payments until a future date that you choose.

For example, your grandchild is 10 years old. You make a $100,000 deposit. You decide to have income payments begin when your grandchild reaches age 25 and continue for the remainder of his or her life.

One top insurer will guarantee a payment of $617.25 per month, with $470.96 of it taxable. If your grandchild lives to age 85, he or she will collect $444,420: $344,420 in interest plus the $100,000 of principal.

An income annuity has no cash value. So, after you’re gone, your grandchild won’t be able to blow the money on a fancy pickup truck or something frivolous. And since he or she will receive a check from you every month, you’ll be remembered fondly.

If you choose annual payments, you might have the annuity check arrive each year on your grandchild's birthday or on Christmas, Hanukkah, or another holiday. You can also extend your legacy. With the right type of annuity and strategy, you can choose to have annuity payments continue to go to his or her child or children for the remainder of their lives, too.

While you may never even meet your great-grandchildren, they too can receive a regular gift from you. This option, however, does reduce the amount of income your grandchild will receive. In addition, the checks can increase. You can add an inflation-protection rider so that the amount will go up over time. This will help the recipients retain future purchasing power.

Over time, an initial deposit of $100,000 could grow to $300,000, $400,000, or more in total gifts received. It depends on how long the income pays out, the internal rate of return offered by the insurance company, and how many recipients are set up to receive the income payouts. What other financial product will let you do this?

Another advantage is tax efficiency. When income is received, only a portion of it will typically be taxable. This is because part of the income from an annuity is considered to be a return of principal and part is considered to be earnings. While earnings are taxed, return of principal is not.

While others may give gifts that are soon forgotten, providing those loved ones with an ongoing gift of income that will last for the remainder of their lives or longer will ensure that you have created a legacy for yourself as well as a nice financial cushion for the younger generation of your heirs.

For more articles on annuities and their advanatges head over to our 

Interest rates from dozens of insurers are constantly updated on the AnnuityAdvantage site. A free report can be ordered at 

https://www.annuityadvantage.com/lp/gl/annuity-rate-report-gl02.html

Annuity expert Ken Nuss is the founder and CEO of 

, a leading online provider of fixed-rate, fixed-indexed and immediate-income annuities. He launched the AnnuityAdvantage website in 1999 to help people looking for their best options in principal-protected annuities. More information is available from the Medford, Oregon, based company at 

Part of your retirement planning may also include finding a way to leave behind a legacy for any family members that you will eventually leave behind. Leaving this legacy will require a stong plan, and there are other ways to do it besides a trust fund.

Using an Income Annuity to Leave a Legacy

Investment always comes with risk, but you can mitgate those risk with careful planning and a little bit of confidence.

People approaching or in retirement should not have an over-weighted stake in equities. If you need to reduce risk in your IRA and/or Roth IRA, what are the best ways to do it?

A bank certificate of deposit (CD) is a reasonable choice. But a fixed-rate annuity can be an even better choice.

Both CDs and fixed annuities let you protect your savings from market risk, earn a set rate of interest and guarantee your principal. But fixed-rate annuities have the edge because they usually pay substantially more than a CD with the same term.

For instance, you can buy a five-year annuity that pays a 4.00% annual rate. The top five-year CD pays 3.15%: 21.3% less interest.

Fixed-rate annuities also have advantages over bond funds. Bond funds are totally liquid but do not guarantee a rate of return. If interest rates spike, the share price will decline, perhaps substantially.

All annuities fall into two basic groups, immediate and deferred. The latter are called deferred because you’re normally not taking income out in the short term. Reinvesting the interest lets your principal grow faster.

The fixed-rate deferred annuity, mentioned above, is sometimes called a CD-type annuity. Its formal name is the multi-year guaranteed annuity

or MYGA—a tongue-twister of a name for a simple product.

Like a certificate of deposit, it guarantees a set interest rate for a number of years. MYGAs usually pay somewhat higher rates than CDs with a comparable term.

You can repeatedly renew a MYGA for additional guarantee periods at the end of each term. Or you may eventually choose to annuitize it and convert it to a guaranteed stream of income for a set number of years or your lifetime.

This is the only product available that offers both market-based growth potential while still guaranteeing your principal. It’s a have-your-cake-and-eat-it-too product. It can be a great halfway alternative.

This type of deferred fixed annuity offers a share of the gains, in the form of an interest rate credit, when the stock market goes up. In exchange for a guarantee that you’ll never lose money, you may get only part of the market’s annual gain as measured by an index such as the Dow Jones Industrial Average (DJIA) or S&P 500.

If the market index is negative for the year, you’ll typically get no interest, but never a loss.

Experts expect the product to produce long-term returns that exceed that of bonds or fixed-rate annuities but trail equity returns, but without market risk and volatility. You need to be willing to withstand some interest-rate uncertainty. Optional guaranteed lifetime-income and/or withdrawal-benefit riders are commonly available for an additional fee.

A DIA can provide a guaranteed lifetime income. Also called a longevity annuity, it defers income payments to a future date you choose. It provides guaranteed lifetime, or joint lifetime, income after an initial holding period of anywhere from two to 40 years.

With a DIA, the income payout will be significantly higher than with an immediate annuity. The insurer rewards you for making a long-term commitment and deferring your payout.

A deferred income annuity can work well with IRAs, but you’ll need to make sure your income payments begin no later than age 70 ½ to comply with Required Minimum Distribution (RMD) rules. If you want to defer income payments past that age, then you should consider a qualified longevity annuity contract (QLAC).

A QLAC is a recent variation on the DIA. It’s designed to meet specific IRS requirements so that you don’t need to take required minimum distributions on the assets in the QLAC.

It’s the only way you can legally delay RMDs for a portion of your IRA funds and thus keep more money in your IRA longer.

You can invest up to $130,000 of IRA money in a QLAC. You can delay taking RMDs on the QLAC as late as age 85, instead of having to take them starting at 70½, as you would with a standard IRA.

This one pays income immediately. If you’re over 70½, it also helps fulfill your required minimum distributions. An immediate annuity converts an asset to income efficiently, but in return, you have little or no ability to change the income stream once it starts. It’s a great way to get a guaranteed lifetime income.

Some retirees don’t like the idea of illiquidity. But it is very hard to obtain the same level of guaranteed lifetime income any other way, especially if you need income right away.

Every pre-retiree or retiree should consider annuities for part of their IRA portfolio. And while a CD-type annuity is always a good starting point, there are many other types worth investigating.

Want to Do Better Than Bonds? Consider Fixed Indexed Annuities and Fixed-rate Annuities

, a leading online provider of fixed-rate, fixed-indexed and immediate-income annuities. Interest rates from dozens of insurers are constantly updated on its website. He launched the AnnuityAdvantage website in 1999 to help people looking for their best options in principal-protected annuities. 

More information is available from the Medford, Oregon, based company at 

Contact:  Henry Stimpson, Stimpson Communications, 508-647-0705, Henry@StimpsonCommunications.com

CDs and bonds have a role, but less-used annuities can offer higher interest rates, secure principal and guaranteed income choices. 

Many Options to Reduce Investment Risk in IRAs

As you're reassesing your finances for the rest of the new year, don't forget to find ways to cut on your taxes.

January is a good time to reassess your financial situation, including taxes. The first step is to estimate your 2018 federal and state income taxes. Once you understand what’s driving your taxes, you’re in a good position to take action to minimize them so you can save more for retirement.

Despite a reduction in overall tax rates, people who can no longer itemize deductions may end up paying 

. It’s especially important now to have a plan to keep your taxes under control over the long term.

Tax-deferred and tax-free investments—including IRAs, Roth IRAs, and 401(k) plans&mdash;offer a tax-reduction toolbox. But don’t overlook another powerful tax-cutting tool: the deferred annuity.

People who have sufficient cash reserves can shift part of their taxable (nonqualified) savings from money markets, CDs and mutual funds to a deferred annuity. Without the drag of federal and state income taxes, your funds can grow faster until you need the money in retirement.

When you do start taking money out of the annuity, you’ll pay tax on withdrawals. But you can still get tax advantages. That’s because only annuities offer an annuitization option--which is why they’re called annuities.

If you choose to annuitize, you turn over the money you saved in the annuity to an insurance company. It then guarantees to continue payments for a set period of time you choose—such as 20 years or even your lifetime.

Then, your taxes will be spread out over the payment term. Part of each payment will be considered a return of premium (the excluded portion) and the remaining non-excluded portion will be taxed as ordinary income.

For example, let’s say Bill invests $100,000 in a deferred annuity at age 50. He pays no annual taxes on the interest earnings left to compound in the annuity, which average 4 percent a year. When he retires at 65, his annuity is worth $180,094. Bill then decides to annuitize the contract. He chooses the lifetime income option.

Under current rates, a typical annuity payout for Bill would be $12,427 per year, which can be paid monthly or quarterly. Of that annual sum, $4,996 would be considered tax-free return of principal, and $7,431 would be taxable income.

If Bill exceeds his life expectancy, the payments will keep coming even after the entire principal has been repaid. At 65, his life expectancy is 20 years. Thus, after 20 years, the annuity income would be fully taxable. But Bill can’t complain because the payments are basically coming out of the insurer’s pocket.

That’s why a lifetime annuity is often called longevity insurance. It protects against the financial risk of living to a ripe old age, even if you live to 100 and beyond.

Don’t buy a deferred annuity if you may need the money before age 59½. In addition to ordinary tax on withdrawals of earnings, you’ll also pay a 10 percent penalty tax.

Some Social Security Recipients Can Also Cut Tax on Their Benefits

 of people who receive Social Security are required to pay taxes on at least a portion of their benefits. The percentage of your Social Security benefits that are taxed is determined by your provisional income. To calculate it, add up your gross income, tax-free interest, and 50 percent of your Social Security benefits.

Married couples with less than $32,000 of provisional income are exempt from the tax. Couples earning between $32,000 and $44,000 have up to 50 percent of their Social Security benefits subject to federal income tax. Those couples making more than $44,000 pay tax on up to 85 percent of their benefits. For singles, the thresholds are $25,000 and $34,000.

Many eligible retirees can reduce the tax on their benefits with an annuity. They can remove money from bank accounts, CDs and money market funds, or other investments and buy a deferred annuity. The move will reduce their provisional income and thus tax on their benefits.

Besides reducing the federal tax, some will get additional savings because there are also 13 states that tax Social Security benefits. Most higher-income earners won’t be able to sufficiently reduce their provisional income to benefit from this strategy.

But a deferred annuity will still reduce retirees’ ordinary federal income tax and state income tax too, if any, regardless of your income level, just as it does for anyone else.

Using the start of the New Year to reassess your finances is a must-do, but instead of just taking a look at the books you can also find a way to save on your taxes following these methods.