I’m young (late 20s), saving for my own retirement via 401k and Roth IRA (neither one is getting enough funding, but that’s another matter) and have been told for the last 15 years that annuities, while not bad, are generally minus-EV unless you can live a very long time on one. Should I consider adding an annuity into my planning and can I do so in a way that will give favorable tax treatment?
You really don’t see the difference between taxing the bonus of a person who wouldn’t have a job but for government intervention and confiscating private retirement accounts?
We need to whip up some crazy right-wing rumors that are actually beneficial to society. Like a rumor that Obama is going to imprison people who haven’t exercised enough, or something.
Its a good question for a tax planner or financial planner. I actually think annuities - depending on the interest rate you can get, are not a bad SHORT TERM sort of investment. And I’m starting to see them show up in financial planning articles this way…
"When you retire, move some of the money you had in your bonds to annunities and live off that income stream - its guarenteed income. Your short term needs should be in cash or that annuity stream, then bonds, and finally stocks. As you age you continue to drain the stock account into the shorter term accounts.
So you retire and maybe live for five years off the income stream from the annuity, that money is gone, and you move more money.
But its really interest rate dependent and it controls the income you can tap each month.
It may not happen in the US but the government in Australia certainly has plans to steal people’s superannuation accounts. The tax review commissioned by the government concluded:
“The estimated premiums clearly show that greatest efficiency is achieved through the compulsory conversion of superannuation benefits to annuities through a public sector arrangement.”
Note the word compulsory. So it is just a matter of time before the money you are forced to put in to a Super fund is appropriated by the government.
It is absoutely critical to understand the difference between variable annuities and income annuities. Variable annuities are mutual funds in an insurance wrapper sold by financial firms. They tend to be very expensive and unsuitable in most cases for the great majority of investors. They use the insurance component to promise some worst case scenario to protect you against market decline.
Income annuities are nothing you need to consider until you are actually approaching retirement. What they are is a contract between you and an insuarance company to pay you so long as you, or you and your spouse are alive. So let’s say you have $500k in your IRA. You could hand over $200k to the insurance company in exchange for $1100 a month for as long as you live. That $200k is now gone. It has been replaced by what is, in effect, a pension.
An earlier poster said it wasn’t worth it unless you lived a long time. That is generally true. The attraction of this arrangement is that even though you know the insurance compnay will ‘win’ in the aggregate, you still benefit. It is very hard to guard against the possibility that you might live much longer than the average. The annuity will protect you, and you are basically getting the dollars from the people who died earlier than expected.
Imagine you had that same $200k and you are 65. You start drawing money from it. You have to be very careful and maybe draw $850 a month, not knowing when you will die. When you die your heirs get the remainder, but during your life you are taking less to guard against longevity. So taking $1100 rather than $850 in exchange for not passing the remaining balance on to your heirs can be attractive.
Given how often the Republicans try to completely privatize retirement and social security, how likely does this option seem to anyone?
We’re going to confiscate your retirement money. All that “privatization” talk was a TRAP! Muahahaha!!!
I agree; unarmed people are much easier to rob. 
And no, I don’t believe O is coming for either.
At least not any time soon.
What? Who said that?
Since when does the Carolina Journal = several financial writers, one wonders? One might further wonder if the Carolina Journal even has several writers.
The AIG people who got the “big bonuses” were working for free. The bonus was their entire pay check. They were not the people involved in the creation or execution of derivatives but were brought in from other parts of the company to liquidate assets to repay the loan. They were used by government officials who knew this but chose to make displays of political vigilantism for public consumption.
As to the 401K changes in taxes, that’s just insanity that has no explanation. The fact remains that the changes WERE proposed. The confiscation of part of our 401K’s in the form of taxes was an actual proposal.
Sez you. You got a cite showing a single individual whose sole salary was a bonus and who, under the proposal, would have had 100% of it taxed?
“Steal” and “appropriate” are highly loaded words. You make it sound as though the retirement-age balance in people’s superannuation funds is going to be whisked away into the black hole of Consolidated Revenue, never to be seen again, and without any compensation to the super fund member. The proposal in the report is that the balance at retirement would be compulsorily annuitised i.e. paid over to a public sector “life insurer”, in return for a lifetime income stream, with a Commonwealth government guarantee of the longevity risk.
In any case, the report by Mike Sherris and John Evans looked at a number of options. The authors don’t actually recommend the compulsory public sector annuity option. They simply note that, on their modelling, it is likely to be the most efficient option, given the huge advantage of pooling the population longevity risk.
Jake DeSantis resignation letter.
Those who proposed penalty taxes up to and including 100% tax.
I thought this was common knowledge since it made the news. That aside I posted a cite showing how legislators have eyed 401K’s as a source of revenue.
You mean one legislator’s press secretary, not legislators.
McDermott’s press secretary called Ghilarducci’s ideas “intriguing” and “part of the discussion”. That’s it. Read the FactCheck link in the first reply to this thread.
You’re acting as though there’s been a big push from folks in Congress to make changes to the way 401(k) accounts work. There hasn’t.
I’ve only posted that legislators have eyed 401K’s as a source of tax revenue. while the thread subject of total absorption is highly unlikely (read civil war) the possibility of a congressional thumb in the retirement pie is a tax proposal away from reality.
Neither of those citations supports your claim. The one you already posted makes no mention of what the salaries of the people targeted by the idea are. The new citation - an angry resignation letter from a bailed-out banker - talks about a House bill that would tax retention at 90%, leaving him six figures of income.
You asked for a cite showing that someone working for the salary consisting entirely of the bonus and I provided it. You asked for a cite showing attempts to tax the bonus out of existence and I provided it. This was all in the news at the time. At this point I can only assume you have nice shoes and wish you well.
Glen Beck, Sean Hannity?
Those guys are trustworthy, right?
I asked for a cite for your claim, which is that there was a proposal to tax 100% of the bonus of someone whose salary was exclusively a bonus. No such cite, or combination of cites, has been forthcoming.
So the cite I gave you that brought up the headline: AIG bonus checks may be taxed at up to 100%, says Sen. Chuck Schumer doesn’t come up when you click on it? And the other cite that I gave showing a legislative desire to tax 401k’s for more money didn’t register? Do you believe that tax laws are permanent and can’t be changed by politicians? Just look at the volatility of inheritance taxes.
There is nothing you own that can’t be taxed at a higher rate and I think I’ve been clear on how 401K’s have been looked at as a source of additional tax revenue.
The disconnect here is almost comical. I’ll let someone else explain it, if anyone cares.