As a source for retirement income, consider immediate annuities. They may be called by other names, such as payout annuities and income annuities. By any name, you give a sum of money to an insurance company and begin to collect a stream of payments, which might continue for your lifetime, no matter how long you live.
Today, a 65-year-old male might buy an immediate annuity from a top-rated insurance company for $250,000. Say he signs a contract to receive payments for his lifetime, with no survivor benefits. He might lock in a payout of over $20,000 a year.
If the annuity is purchased inside an IRA, the money will be fully taxed as it comes out. However, if the annuity is bought with after-tax money, some of the payments will be treated as a tax-free return of principal.
A 65-year-old man receiving $20,000 a year, for example, might owe tax on only $8,000 worth of income. After paying around $2,500 in income tax, this man might get $17,500 a year, after tax, on his $250,000 outlay.
