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"Income For Life" Offers: Buyer Beware |
Mark Meyerowitz,Owner,
Meyerowitz Investment Management
Mr. Meyerowitz has been investing since high
school, in the 1970s.
After graduating from Brandeis University in 1977; Mark built up his small family business into a large local retailing company.
From the mid 1990s to early 2003, Mark was a broker with Smith Barney and with Edward Jones; two of the largest invest firms in the nation.
Mark and his family have lived in West Orange, NJ since 1987.
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 We've
all seen the television ad of the cuddly, oversized gorilla
telling the pre-retiree that he should consider an "income
for life" plan. But maybe, there are a few things to consider
before you take the bait.
"Income for Life" is not a new idea. It is, most likely, a
payout option of an annuity contract. An annuity is an investment
program made with insurance companies. "Income for life" is
one of the annuity payout options that you can chose. You
make a deal with the company, and they promise to pay you
the same dollar amount for as long as you live.
One of the problems with this arraignment is that the dollar
amount paid to you could be fixed forever. If you receive
$1,000 a month now, you will receive $1,000 a month twenty
years from now. Unfortunately, prices are continually going
up, which makes the buying power of your $1000 less and less.
While the dollar amount payment is fixed, your purchasing
power is shrinking. This is not a great situation to be in.
Another consideration: who keeps the principle amount of money
when you die? You have to check this out. If you chose the
income-for-life payout, it is possible that you heirs will
not receive the money in your annuity. If the heirs aren't
getting the money, who is? Believe it or not, the money could
revert to the insurance company. This is a possibility that
needs your due diligence.
Taxes: is the income from the annuity taxable? You bet it
is! Check with your accountant to find out the rate at which
it is taxed. There is a chance that it is taxed at a rate
higher than ordinary income. Don't ask the selling agent.
Ask your accountant.
If you already own an annuity, you may want to compare different
payout options. If you are thinking of buying an annuity,
you may want to look at alternative investments that could
maintain your buying power, be inherited by your heirs, and
has a better tax rate.
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