We’re talking about annuities. Annuities are a financial contract between you and an insurance company. In the simplest terms, you pay a large amount up front, then the company pays you back over the following years... either for a fixed number of years or until you die. When used properly, annuities can provide stable income and remarkable peace of mind.
The folks who like to play with mathematical models and do advanced analyses of retirement portfolios find annuities to be invaluable assets. As early as 1965, a seminal paper found an annuity to be “invariably” the best option for retirees, given they don’t know exactly how long they will live.
One quarter of the Baby Boom generation expects to work until they die...
For Americans ages 46-55, having enough money to retire is among their most pressing worries.
As a medical doctor, I can tell you that if you’re relatively healthy right now and a nonsmoker, you could live a lot longer than the averages. How long? It’s impossible to say. There are just too many variables. And that leads to important questions:
That’s why I’m going to lift the veil on one of the most misunderstood secrets of the wealthy... annuities.
The estate tax exemption that allows an individual to give $5.12 million tax-free to immediate family is in danger of ending in eight weeks. The exemption was $1 million in 2001, but increased to $5 million in 2011 and $5.12 million in 2012 (an inflation adjustment). On January 1, 2013, the exemption will automatically revert to the $1 million mark.
While I believe there's a good chance Congress will preserve some exemption, we can't be sure the level will remain at $5 million. Lawmakers could drop it to $3 million... even $2 million.
Of equal concern is the loss of the "generation skip transfer" – the tax break that covers the transfer of assets to your grandchildren. It's almost certain this loophole will be eliminated or at least severely reduced from the $5.12 million mark.
So if your net worth is $1 million or more – and you are concerned about paying taxes on money you transfer to your family members – you should carefully consider this exemption before the end of the year.