Home Financial Planning Can an annuity help sidestep Social Security taxes? – Financial Planning

Can an annuity help sidestep Social Security taxes? – Financial Planning

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Our daily roundup of retirement news your clients may be thinking about.

Can an annuity help me sidestep Social Security taxes?
Annuitizing savings in a taxable account may not be a smart move for seniors who want to avoid the tax bite on their Social Security benefits, according to this opinion article on MarketWatch. Although the earnings in a deferred annuity will be tax-deferred and not included in their adjusted gross income, future withdrawals from the annuity could trigger a bigger tax bill than when the savings had stayed in the taxable account. That’s because the earnings, which are taxable, will have to be withdrawn before the principal, boosting the retirees’ combined income and consequently the portion of Social Security benefits to be subject to income taxes.

Bloomberg News

Can you hedge retirement risk if your employer is Uncle Sam?
While investors will be better avoiding shares of the company that provides them income, experts cannot really say whether those who rely on federal pension should avoid the U.S. stock market and turn to international stocks, according to this article on personal finance website Motley Fool. “The overall principle of factoring your pension into your overall asset allocation definitely makes sense,” says an expert. Another expert points out that most investors are heavily invested in the U.S. stock market and have seen better returns over the past years, as international stocks didn’t perform quite well during the same period.

Retirement in America is too expensive, but it doesn’t have to be
Although the U.S. and Canada faced similar challenges when it comes to retirement security, Canadian policymakers strengthened the main component of their social security program, knowing that building a nest egg could be very costly for their workers, writes a Forbes contributor. Because of this move, workers in Canada face better retirement prospects than their American counterparts, the expert writes. “We should applaud Canadian policymakers for taking decisive action to shore up their basic building block of retirement income. Sadly, the situation in U.S. couldn’t be more different.”

4 things I’m starting to pay for now that I won’t need until I’m 65
Before turning 30, a young professional developed a four-step game plan that would help her achieve financial security in the future, according to this article on Bankrate. The plan includes saving in a 401(k) plan, buying life and long-term care insurance policies, and setting up a personal savings account, she writes. “I started funding things like retirement accounts and paying for insurance that I likely wouldn’t need or benefit from until after turning 65, giving me 35 years to grow my retirement nest egg and protect myself from the unexpected.”


Lee Conrad

Lee Conrad

Lee Conrad is Editor of Bank Investment Consultant.

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