If you’re a senior age 65 plus looking for a low risk way to reduce taxes on retirement income while boosting your monthly cash flow, you might want to consider prescribed annuities.
The word annuity can scare off a lot of people because in the past, most annuities die with the person setting them up. Today insurance companies hungry for retirees business offer a range of flexible annuities, some having guarantees for beneficiaries for ten and fifteen years of payments. The plan is simple. You lock away a fixed amount of money in return for income for life. You can set up individual or joint annuities with your spouse. If you die, you set a guaranteed beneficiary payment period, say five or ten years from the start date of the annuity.
The key here though often overlooked is taxation. If you’re getting clawed back old age pension and see your income diminish and your quarterly income tax installment bill rising, then consider an annuity for part of your income. The annuity reduces the amount of taxes payable because it amortizes the investment income over the life of the annuity. If your spouse is in a high tax bracket and generates a lot of interest income, annuities can be a way of reducing the tax bill.
Most professionals recommend annuities, but usually to a maximum of 25% of your investment portfolio. The ideal investor is usually past age 70 and is paying tax installments quarterly or has large income tax deductions from your retirement income. Not all investors though are over age 70. Some annuities work well with people in their 60s since they can sometimes qualify for insured annuities, which guarantee the principal amount tax free to beneficiaries upon death. This is done by purchasing a life insurance policy.
Insurance companies also allow you to purchase insurance on a smaller amount of the principal. Talk to your financial professional to see if annuities might help boost your income and reduce your tax bill.