Brendan Burgess
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There are many people for whom this might be an option worth considering. Take the case of a retiree who, based on family history and general health, expects to live a long retirement but who has no interest in passing on capital on his/her death. Such a person will not want to run down capital in his/her lifetime but will want to maximize income. He/she would need to invest any (tax free) lump sum and would end up paying tax on the returns. So there will be tax paid on the money to be spent if the original lump sum is not run down. An annuity is a convenient investment vehicle in these circumstances. While it may not be the most appropriate, it is a logical option.Question B)
Mercers gives him an option to forgo the tax-free lump sum and buy an annuity with it. How could this be a good idea? To use tax-free money to buy an annuity which is taxable?
The only way it could make sense is if the annuity rate was so brilliant that it compensated for the 41% tax take. If it is so brilliant, how can it be so?
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