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Author Topic: Why I want to make $0 earnings on an investment; FOREVER.

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This is a contrast to the thread "what is your minimum acceptable return". In this case my MAXIMUM interest is 0%.

Yesterday I told my investment advisor to look for a way to ensure I made nothing or as little as possible on one of my investments, FOREVER.

A lesson in thinking outside the box...thought someone might be interested.

Just got done filing taxes for 2017 and it started me thinking of future years.

I am retired and live on social security, a work pension, ROTH withdrawals and the remnants of a "golden parachute". That remnant ends in 1 1/2 years so I will need to find some income to replace it.

There are a few reasons for purchasing an annuity (and a few more than a few to NOT purchase one). One of those reasons to purchase is to provide guaranteed income for the rest of your life. When I retired I opened an annuity for guaranteed income for the rest of my life to replace that parachute; to start when my parachute ended. This particular annuity is non-qualified (I funded it with after tax money).

Because of the way an annuity income stream works I have come to realize that I don't want that annuity earning any interest or gain, BECAUSE of taxes.

There are two values to this particular annuity. A current value and an income stream value. The current value is the initial investment plus any gain realized. The Income stream value is based upon the initial investment plus 6.5% interest each year. Once you turn on an annuity income stream that income value interest stops BUT the current value gains do not. The income stream value is basically meaningless except that it is used to determine the yearly income stream amount when starting the payments. You get that income for life even if your income payments eventually total more than that income stream value. 

Once the income stream starts the current value is essentially meaningless also; except for one condition in my case. That condition is why I don't want to earn money.

Once the income stream starts it doesn't end until you die. Also (for all practical purposes) your income payment WILL NOT increase in future years even if your current value increases. What WILL happen if there is a gain is that some (or all) of my income payment will be taxable. This is a non-qualified annuity. As such, if my annuity does not increase in value I have 15 years worth of non taxable income. (It will take 15 years of income to wipe out that inital investment.) Obviously when all the current value is wiped out my income stream payment will be fully taxable...but because of the annuuity I still HAVE an income stream. If the annuity gains 6% or more in one of those first 15 years, ALL of that year's income is taxable. There is NO benfit to me if this happens. I get the same amount of money...BUT I DO end up paying a good chunk of it to the IRS.

PLUS a larger part of my social security is taxed. Currently only 46% of my social security is taxable. (I purposefully set up my income for this...I know...I know...when RMD kicks in that will go up to 85%...but that's the way it goes...). If my income stream becomes taxable 85% of my social security is taxable.

Now you know why I don't want to earn anything on this particular investment.

By the way...for those of you who don't know...ROTH distributions are NOT taxable and also DO NOT count in the formula for determining how much of social security is taxable.
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As a developer of annuity/life/etc administration software my brain just goes FEES FEES FEES.  It is an interesting tax dilemma though.  All our clients are based overseas so I've never really sat down and thought about the tax implications of owning the different options in the US.  I be your investment advisor looked at you like WTF??
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Actually, you should have better questions.
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I also like to think outside the box, that's why I choose property crowdfunding for my investments. Good old real estate, but for small amounts of money - a combination that suits my taste.
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