Investment basics Taxes and retirement

Fixed annuities

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So you've done it. You stopped collecting a paycheck. Now how are you going to make the money you worked so hard for last your lifetime - and still enjoy retirement? Part of the challenge is to manage the income you receive from social security, employer plans and your own investments - and protect your assets.

You'll be taking income from three places.

Social Security

Social Security is still an important source of income. Just how much you get depends on how much you made during your working years. In 2000, the maximum monthly benefit for an individual was $1,433, and $2,149 for a couple.

You can begin collecting benefits the first full month you turn age 62. But taking your benefits early could reduce your benefits by as much as 30% over your lifetime.

Keep in mind that the age you can begin taking full retirement benefits is raising. If you were born before 1938, you'd receive full benefits at age 65. If you were born in 1938 or later, you'd have to wait as long as age 67. See graph for details.

	Year of birth Full retirement age 1937 or earlier 65 1938 65 and 2 months 1939 65 and 4 months 1940 65 and 6 months 1941 65 and 8 months 1942 65 and 10 months 1943-1954 66 1955 66 and 2 months 1956 66 and 4 months 1957 66 and 6 months 1958 66 and 8 months 1959 66 and 10 months 1960 and later 67 *Persons born on January 1 of any year should refer to the previous year. Source: Social Security Administration, 2001

Personal investments and retirement accounts

There is no set guideline for everyone - each strategy is different. But, most experts will tell you the best plan is to take income from a blend of sources instead of liquidating one investment first. So, you might take a portion from your retirement accounts and then take interest and/or dividends from your taxable investments. But you should ask your tax adviser for help.

Annuity income

When selecting your payout structure, consider: Current age and health Family history of longevity Other sources of retirement income Inflation

If you have an annuity, you'll want to wait to start taking money until you're already retired and at least age 59 = (so you don't face tax penalties). When you take actual income from an annuity, or "annuitize," you are basically trading the value of your contract (principal and earnings, minus witcommon/hdrawals) for the insurance company's guarantee to make payments to you for a certain period or for your lifetime. This guarantee is based on the claims-paying ability of the insurance company.

Employer plans

If you're lucky enough to have an employer pension plan or 401(k), you have several options to manage your money when you retire:

	Leave your plan with your employer Not all employers allow you to do this. But if yours does, be sure the investment options available match your investment objectives. Take a lump-sum distribution If you do this, you'll probably face stiff taxes (even penalties if you're under age 59=). Roll it directly into an IRA Just ask your employer to send a check directly to the financial institution where you are setting up an account.

When you invest in retirement accounts, be aware of the following tax rules:

A final word-protect your assets.

Now that you've grown your money, you have to find a way to protect it. One of the biggest concerns retirees have today is protecting assets from long-term care expenses. Because there is a good chance that you may need to pay for nursing home, assisted living or home healthcare one day. In fact, more than half of the U.S. population will require long-term care at some point in their lives. 1

Unfortunately, this kind of care is expensive. The average nursing home costs range from $40,000 to $80,000 each year. 1

	Retirement vehicles
	What is a fixed annuity? A fixed annuity is a contract issued by an insurance company. You can set aside money to have it grow on a tax-deferred basis for your future use. When you are ready to retire, you can witcommon/hdraw money as needed, or turn the value of your annuity into a regular income stream that is guaranteed by the insurance company to last the rest of your life, regardless of how long you live. For more information, click here. What is a mutual fund? It's an instrument that invests in many types of stocks, bonds and cash - or a combination of all three. With a mutual fund, you can spread your risk among several investments, versus just one stock. What is long-term care insurance? Like other insurance, you pay a specified amount of money (premium) to help offset the risk of larger expenses. You pay this premium so that if and when you need long-term care, you would receive a daily benefit to cover specified care in a nursing home, assisted living facility or at home. Instead of purchasing a large benefit amount of $250,000 for example, you pick a daily benefit amount which can range between $50 and $300. 1