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Author: ttatum1 Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 75828  
Subject: Roth IRA - annuity Date: 8/14/2000 2:29 PM
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When it comes time to start withdrawing from your regular IRA it is my understanding that one could purchase an annuity inside the IRA and get an incone for life and that this would also satisfy requirements for required systematic withdrawals. These payments would of course be taxable.
I know that you are never required to make withdrawals from a Roth IRA but if you desired to get systematic payments from a Roth IRA could you do this via an annuity within the Roth IRA and get those payments for life and have those payments be tax free?
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Author: pauleckler Big funky green star, 20000 posts Top Favorite Fools Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 24119 of 75828
Subject: Re: Roth IRA - annuity Date: 8/15/2000 10:30 AM
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The big problem with annuities is that in most cases, the payment rate is fixed for life. There is no inflation protection. For those who expect to be retired for 30 yrs or more, this is not likely to be acceptable. Your living expenses will probably double in that period at least once, maybe twice.

Few Fools would recommend an annuity in these circumstances--unless you have signficant other investments likely to be able to keep up with inflation, or the annuity payment far exceed your needs so you can have significant savings out of the payments.

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Author: TTRoberts Big red star, 1000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 24122 of 75828
Subject: Re: Roth IRA - annuity Date: 8/15/2000 11:18 AM
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pauleckler writes:

<< The big problem with annuities is that in most cases, the payment rate is fixed for life. There is no inflation protection. >>

While it's true that in "most cases" fixed rate annuities are used for a life time of income that one can not outlive - these days this is not because there isn't a choice between a fixed income and a variable one that can increase to keep up with inflation.

There are Variable Immediate Annuities that provide a lifetime of income and like any Variable Annuity, one can choose the type of investments within the annuity. Those investments can be any asset allocation combination from fixed to something very aggressive depending on the persons risk tolerance.

These days, and even in the days before variable annuities, Immediate Fixed Annuities are chosen for the very specific reasons, not just living expense income, that the very fact that the payments that are going to be received are fixed and won't change. So, fixed annuities with their fixed rate of return do have their legitimate uses depending on just what one is trying to accomplish.

<< For those who expect to be retired for 30 yrs or more, this is not likely to be acceptable. Your living expenses will probably double in that period at least once, maybe twice. >>

This is a VERY good point as retirees should be aware of how inflation can reduce one's buying power if they're on a fixed income. Depending on a fixed income from a fixed annuity not a good financial choice . . . especially if one expects to live on that income for 30 years or so.

Even so . . . many retiring seniors still prefer safety above everything - their risk tolerance is very, very low . . . for whatever reason. Typically, this is what has been common in the past and there's still a lot of it even in today's environment. Because a fixed annuity has a known rate of return and a known dependable income, this has been the choice of many.

Times are changing and a new and more informed and risk tolerance generation is coming of retirement age. This baby-boom generation will be more active in managing their assets and any will likely opt for having a Variable Immediate Annuity as part of their income flow. What will be best for any particular individual will DEPEND on the income producing assets available and what one's plans and objectives are.


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