Go Ahead, Retire at 62 and Claim Social Security at 67. Your Benefit Will Climb.
March 1, 2022 by Nick Fortuna
Q: What’s a tax-efficient way to protect the holdings in my taxable investment account from inflation?
Savers with a moderate risk tolerance should consider blue-chip stocks that offer qualified dividends or an exchange-traded fund made up of those companies, Shuchman says.
Qualified dividends are subject to tax rates for long-term capital gains, while ordinary dividends are subject to regular income tax rates. Verizon (ticker: VZ) and Pfizer (PFE) are examples of companies that are “very healthy in terms of their financials and also provide that qualified dividend,” Shuchman says.
Investors with a low risk tolerance might opt for a fixed index annuity, which pays the investor an interest rate tied to the performance of a specific market index such as the S&P 500. Fixed index annuities offer protection against the loss of principal, but in exchange for that guarantee, investment gains are limited.
When seniors withdraw money from an annuity, their investment gains are taxed as regular income, but until that point, investments grow tax-deferred. “A fixed index annuity will provide some growth against inflation,” Shuchman says. “It will be a lower growth rate than a pure equities strategy, but it does have a principal guarantee.”
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