I am debating whether to purchase an annuity with immediate (rather than deferred) income--or whether I should just invest in the Foolish Four and hope for the bigger returns of the market to continue. I am not quite at retirement age yet, but plan to quit my job to start my own business this year. Any advice from someone with annuity experience or knowledge?
gpstern, yoiu asked:<< I am debating whether to purchase an annuity with immediate (rather than deferred) income--or whether I should just invest in the Foolish Four and hope for the bigger returns of the market to continue. I am not quite at retirement age yet, but plan to quit my job to start my own business this year. Any advice from someone with annuity experience or knowledge? >>They money you want to generate current income, especially if you're depending at all on that income, should not be in any position to "hope for bigger returns of the market". When one is looking for income, one usually wants some certainty as to just what kind of income can be expected. Investing in the Foolish Four WILL NOT give any certainty for income purposes.Since you are planning on quitting your job to start your own business it seems to me you shouldn't want to put assets that are not going to the development of your business at much risk. I assume that's also why you're considering an immediate annuity. The fact than an annuity provides some creditor protection that other investments don't, this feature might be a important one for someone starting their own business.Whether or not an annuity really would be a good choice to use as part of your planning can't be determined without a lot of details about your financial situation and your plans for starting your business. It would probably be wise of you to hire a professional to do a detailed analysis who can help you work out your business plan and the details of just what kind of things are in YOUR best interest or not - like this immediate annuity thought.Just remember, free "advice" is most likely worth just what you've paid for it. ;-)
Some years ago I considered buying an annuity and annuitizing immediately. Then I made some comparisons and discovered that if instead of buying an annuity I bought 30 year treasury bonds, the income would be the same! Now, if I buy treasuries (which I did with that money) the income stream at my death would go to my heirs, and at the end of 30 years, the principal would return. If I live, also at the end of 30 years there is principal coming back. The annuity would give the income stream until I die, then the insurance company would keep the principal. That didn't seem to me like a good investment. A variable annuity, in which you take no immediate income and the principal is invested in mutual-fund-like entities, is somewhat less bad. Before buying an annuity for income stream, check with a couple of companies with the question. If I had say $100000 and bought an annuity and immediately annuitized it, at my age what amount of income would I get? Then compare to what you could get from good quality corporate bonds or even treasuries. There is another aspect for your heirs: if you just bought stocks, at your death there is a step-up so your heirs do not pay capital gains taxes from when you bought until when you die. They inherit cost basis as of the date of your death. But if you put your money in an annuity, profit is taxed at regular income rates. Best wishes, Chris
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