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I am still in the accumulation stages, having just turned 50, for my retirement in 15 or 20 years. I will soon be receiving some moneys, nonqualified and already taxed. These moneys are to be set aside for our retirement years. We are already maxing out, my wife and I, on our IRAs. It looks to me as though I have three choices, and I am interested in thoughtful opinions on the best alternatives. (I am ruling out a deferred fixed annuity...for either now or in retirement years).

1. Variable annuity with good aggressive fund choices, such as is available with Sun America and with American Skandia. Principle advantage is deferred tax growth on dollars that cannot be in an otherwise tax-advantaged vehicle (such as IRA, 401k, SEP, etc.). Principle disadvantage...are fees and insurance mortality expenses.

2. Direct stock purchases with these funds. Principle advantage...no bogus expenses taken out by fund managers and insurance companies. Principle disadvantage...must pay taxes annually on dividends.

3. Purchase undeveloped land here in Maine for future woodlot sale. Keep it undeveloped to maintain low tax bill on the property to local town. Principle advantage--no income or capital gains taxes until property is sold. Principle disadvantage--property taxes must be paid annually & lawmakers may pass legislation that wipe out the potential of the property as a wood lot.

Any sage wisdom out there by folks who have been there and done that?? Or from others like me who are lurking here hoping to gain some insight??

Thanks for your help and considered opinions!

KCofMaine

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If you decide on an annuity, check out Vanguard. The message board "Retired Fools" has some pretty nasty things to say about annuities though.

You are on the right track with real estate. How about thinking along the lines of a rental property? Where I live, single family homes have less turn over than apartments. The return is lower than for a multi-unit, but at this point I prefer less hassle. Mine is very close to where I live and about half the size of the house I live in now. So, I collect rent and can downsize into the house later if I want.

mk
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Dear KC - As a former real estate broker I'm a little bit shy of investing in vacant land only because of the issue of liquidity (or lack thereof). Having worked through several recessions, including 1989-93 I'm pretty sensitive to the problems land investors have when they want to sell in a down market. From your admissions I would expect you to favor the direct stock purchase option - and look for long-term growth companies that pay little or no dividend (forgoing the income & taxation in favor of capital appreciation). Good luck! PP
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KCofMaine wrote:
<<2. Direct stock purchases with these funds. Principle advantage...no bogus expenses taken out by fund managers and insurance companies. Principle disadvantage...must pay taxes annually on dividends.>>

That would be my preference. I feel the advantage over land is that your dividends will provide cash flow to pay their taxes - whereas with the land, _you_ will have to provide cashflow to pay the appropriate taxes.

Furthermore, these days it's not too hard to find companies that don't pay much, if anything, in the way of dividends. In fact, I've noticed that a couple funds at my favorite fund company (20th, err, American Century) have changed their requirements for how many dividend-bearing stocks they must hold. Previously some of their funds had high requirements, and they were having troubles finding a large enough universe of, say, "growth companies with rising dividends" to invest in.

Later,
scott
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KcofMaine writes:

I am still in the accumulation stages, having just turned 50, for my retirement in 15 or 20 years. I will soon be receiving some moneys, nonqualified and already taxed. These moneys are to be set aside for our retirement years. We are already maxing out, my wife and I, on our IRAs. It looks to me as though I have three choices, and I am interested in thoughtful opinions on the best alternatives. (I am ruling out a deferred fixed annuity...for either now or in retirement years).

1. Variable annuity with good aggressive fund choices, such as is available with Sun America and with American Skandia. Principle advantage is deferred tax growth on dollars that cannot be in an otherwise tax-advantaged vehicle (such as IRA, 401k, SEP, etc.). Principle disadvantage...are fees and insurance mortality expenses.

2. Direct stock purchases with these funds. Principle advantage...no bogus expenses taken out by fund managers and insurance companies. Principle disadvantage...must pay taxes annually on dividends.

3. Purchase undeveloped land here in Maine for future woodlot sale. Keep it undeveloped to maintain low tax bill on the property to local town. Principle advantage--no income or capital gains taxes until property is sold. Principle disadvantage--property taxes must be paid annually & lawmakers may pass legislation that wipe out the potential of the property as a wood lot.

Any sage wisdom out there by folks who have been there and done that?? Or from others like me who are lurking here hoping to gain some insight??


Looks like you've given this matter a great deal of thought. You've outlined your options quite well. If you want the tax break on current earnings, the case for annuities is strong. Nevertheless, I think growth stocks with low dividends will result in a bigger pot in the long run. Thus, if growth is important, I'd opt for Door Number Two. Door Three is out for me because I distrust raw land as a true growth vehicle. As you noted, zoning laws can change too easily. Also, the speculative bubble can burst much more quickly there, too. So given the same choices and in the absence of compelling tax reasons to do otherwise, I would prefer option 2. Just one Fool's opinion FWIW, and that can't be much considering what you paid for it.

Regards…..Pixy

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KCofMaine said:
...(three choices/suggestions) ..
<<1. Variable annuity

2. Direct stock purchases

3. Purchase undeveloped land here in Maine for future woodlot sale. >>

I think that you have even more control over taxes & capital gains with 2. Cap gains can be controlled and turned into long-term just by the holding period. Also, in this day & age, a diversified portfolio has a relatively low dividend rate, and a few dollars are excluded from tax. Also, LIQUIDITY is MUCH higher with 2.

I don't think much of variable annuities. Take the dividends from the stocks & buy insurance (life, health, long-term care).

Now, if you burn wood & like to hunt, there may be more subjective advantages to 3!

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