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Insured Income

At the start of this chapter, I told you that not all insurance requires something bad to happen before something good happens. With income insurance, something very good happens when you retire: The insurance continues your income for a period that you define based on your situation. When you create an insured income stream, you also get to take advantage of the exclusion ratio, as long as the income you are receiving is not coming from an annuity in a qualified plan. When you use the exclusion ratio, each insured income check is part interest and part principal. You pay taxes on only the interest.

We discussed the advantages of insured income and the concepts of fixed and variable annuitization in Chapter 3. We also covered the broad types of payouts you can generate through annuitization. Fundamentally, you have to decide if you want to generate fixed or variable income payments and select a period of time. Once you have made those decisions, you can begin to play with various allocations between fixed and variable annuitization to provide you the right combination of income. Remember that fixed annuitization provides a guaranteed income that will not change, and variable annuitization will result in an income stream that parallels the markets in which you have chosen to invest. I'm an advocate of combining these two and keeping some portion of your assets liquid to maintain some degree of flexibility.


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