Manage Annuities to Improve Retirement

As a physician-investor, you probablyhave financial goals youwould like to achieve. Some ofthese goals may include funding yourchildren's educations, buying a dreamhome, or making sure that your lovedones are protected in the event of anuntimely death.

Postretirement Finances

One universal goal many physician-investorsshare is making sure they havethe financial security needed to enjoy acomfortable retirement. When you haveleft your office days behind, be assuredthat you will still have the job of managingyour income effectively during yourretirement years.

Living expenses have also outpacedSocial Security benefits. According to theSocial Security Administration, in 2000,the average retired worker received amonthly Social Security benefit of only$804, or nearly $10,000 a year. If yourpreretirement income was more than$10,000 per year, this amount may notbe enough to maintain the lifestyle towhich you are accustomed.

Annuities may be able to reduce theimpact of some of these issues. Becauseannuity earnings are tax-deferred, theyare an excellent investment tool to helpbuild wealth for retirement. Annuities canalso help generate an income stream duringyour retirement years.

Annuities Examined

An annuity is the only investmentvehicle that can guarantee a lifetimeincome stream for one or two people fora certain period of time. Guarantees arebacked by the claims-paying ability ofthe issuing insurance company. Thisincome option is called annuitization. Ifyou invest after-tax money, you willreceive a tax-advantaged income streamwhere you only pay taxes on the earningsportion. The following are threetypes of annuitization:

• Fixed income for life. If you want toknow exactly how much you will receivein each payment, a fixed payment streammay be an appropriate choice. Theamount of income is based on factors suchas your age, investment amount, andlength of time you receive payments.

• Variable income for life. With variableincome for life, your income has thepotential to increase over time. This isone way your income may keep pacewith inflation. The payment amount isbased on the performance of the investmentoptions you choose and will fluctuatewith that performance. Therefore,the payment amount could be more orless than your original investment.

Keep in mind:

• Systematic withdrawals. These offeranother annuity strategy. With systematicwithdrawals, you can withdrawa specific dollar amount from your annuityon a monthly, quarterly, semiannual,or annual basis. Systematic withdrawalsgive you the flexibility to withdrawmoney when you need it and specify theamount you need. There are no incomeguarantees with systematic withdrawals.Therefore, if you withdraw more thanyou earn, you run the risk of depletingyour annuity assets and potentially outlivingyour income. Withdrawals of annuity earnings arefully taxable and are subject to a 10% IRSpenalty if taken before age 59 1/2.

The benefits of an annuity may helpyou meet some of your retirement incomeneeds. As always, before selecting anyinvestment, you should work with yourfinancial consultant to develop a plan thatwill meet your long-term financial goals.

Joseph F. Lagowski is vice president,investments, and a financialconsultant with AG Edwards inHillsborough, NJ. He welcomesquestions or comments at 800-288-0901 or www.agedwards.com/fc/joseph.lagowski. This article was providedby AG Edwards & Sons, Inc, member SIPC.