Why Guaranteed Income for Life Doesn't Always Offer the Best Retirement Options
Focusing on accumulating assets may give you opportunities to benefit from government tax incentives and programs, and to transfer wealth to loved ones.

Today's retirees are probably the last generation that will benefit from reasonable lifelong pensions. With pension income, plus Social Security, octogenarians are aging knowing they can cover their needs (food, clothing, utilities and some modest amenities) for the rest of their lives. For people who want to ensure their own casual comfort and financial independence, a guaranteed retirement paycheck is a good deal.
However, due to the structure of government programs and taxation, people with assured lifetime incomes may find it difficult to transfer their wealth to their children. Also, America's tax system favors people who have assets more than people who earn guaranteed income. While large incomes usually limit your ability to receive government assistance, owning substantial assets often doesn't stop you from using these programs.
So yes, while stable incomes may be good for retirees, you may also want to consider maintaining your available assets. Here's why:

Sign up for Kiplinger’s Free E-Newsletters
Profit and prosper with the best of expert advice on investing, taxes, retirement, personal finance and more - straight to your e-mail.
Profit and prosper with the best of expert advice - straight to your e-mail.
1. Income Tax Rates Are Higher Than Capital Gains and Estate Taxes
Capital gains tax rates on "passive investments" are significantly lower than "sweat labor" income tax rates. In other words, people who own assets that appreciate in value pay a lower percentage in taxes than people who earn it by working.
And even though gift and estate taxes have some of the highest rates of all taxes, there are many exemptions, exceptions and planning mechanisms to minimize these transfer taxes. Consider the fact that less than 0.1% of couples pay a federal estate tax when they die. That should shed some light into how much our tax system prefers successful families transferring wealth over struggling families creating a decent living wage. Advantage: Asset owners.
2. Government Programs Have Income Limits
People with high levels of income don't qualify for these types of assistance programs. Medicaid planning for aging family members is the best example: People with large incomes, such as former employees who receive pensions, face a very hard time shielding their pension income from paying medical expenses. Income must be paid over to pooled trusts or directly to the government to qualify for Medicaid. But Medicaid prospects with assets can transfer them to family members with proper planning.
Another example: One of my clients is living in a midtown Manhattan apartment under a New York rent control program for disabled individuals because he receives less than $1,200 a month of disability income. The fact that he has $240,000 in the bank is irrelevant to the city's calculation.
Even the Affordable Care Act works better for asset holders than income earners. That's because mandated health insurance premiums are based on income, not assets. For instance, an adult whose apartment was purchased by his parents or whose checking account was fortified by gifts from his grandparents could still receive relatively low premiums despite being rich in assets.
3. Assets Are More Private than Income
While your assets are private information, the government (and often the media through public records) has the ability to obtain substantial information of your reported income. For example, you can probably find out how much money your favorite movie star, athlete and corporate CEO earned last year. But if you try finding out how wealthy these people are, all you will usually see is a wide-ranging estimate of their net worth.
4. Income Is Inflexible and Difficult to Transfer; Assets Are More Fungible
Your income is usually set in stone. When you retire, what you get from pensions, Social Security and interest or retirement plan requirement minimum distributions remains somewhat static. That leaves you few options to adjust your budget for changes. And typically, you can transfer some of this income to only one person: a spouse. Families who have large incomes tend to lose that money when the earner dies.
People with assets, however, can change how their assets are invested within a few days, or transfer their investments to other people quite easily by just writing a check or drafting a legal document like a deed or business agreement. Therefore, people who already have assets can transfer their wealth to other family members.
The moral of the story: In order to take full advantage of government programs while also creating opportunities to transfer wealth to family, focus on building your asset base. You may want to consult with professionals regarding lump-sum retirement plan options. Also, be cautious when using commercial annuities, and avoid locking up your assets in long term income-generating investments when you can, especially in low-interest rate environments.
Income for life looks good, but it is usually only good for your life and only if you are opposed to receiving government assistance.
Daniel A. Timins is an estate planning and elder law attorney and a certified financial planner, helping clients with wills, probate, living needs and Medicaid planning.
Get Kiplinger Today newsletter — free
Profit and prosper with the best of Kiplinger's advice on investing, taxes, retirement, personal finance and much more. Delivered daily. Enter your email in the box and click Sign Me Up.

Daniel A. Timins is an estate planning and elder law attorney, as well as a Certified Financial Planner®. He specializes in Estate Planning, Surrogate’s Court proceedings, Real Estate Law, Commercial Law and Medicaid Planning. He is a graduate of Pace Law School.
-
The Three C's to Financial Success: A Financial Planner's Guide to Build Wealth
Consistency, commitment and confidence in your chosen strategy are more critical to your financial success than finding the 'perfect' financial plan.
-
A Financial Adviser's Guide to Solving Your Retirement Puzzle: Five Key Pieces
If retirement's a puzzle you're struggling with, try answering these five questions. The answers will guide you toward a solution.
-
A Financial Adviser's Guide to Solving Your Retirement Puzzle: Five Key Pieces
If retirement's a puzzle you're struggling with, try answering these five questions. The answers will guide you toward a solution.
-
You're Close to Retirement and Cashed Out: How Do You Get Back In?
If you've been scared into an all-cash position, it's wise to consider reinvesting your money in the markets. Here's how a financial planner recommends you can get back in the saddle.
-
What the HECM? Combine It With a QLAC and See What Happens
Combining a reverse mortgage known as a HECM with a QLAC (qualifying longevity annuity contract) can provide longevity protection, tax savings and liquidity for unplanned expenses.
-
My Professional Advice: When It Comes to Money, You Do You
This is how embracing the 'letting others be' and 'learning to surrender' mindsets can improve your relationship with money.
-
Direct Indexing Expert Explains How It Can Be a Smarter Way to Invest
Direct indexing provides a more efficient approach to investing that can boost after-tax returns, but is it right for you?
-
Smiley Faces in Serious Places: Emoji Use Pops Up in Legal Battles Over Inheritances
Estate planning attorney notes how emojis are crossing over from casual conversation to litigation. What was once dismissed as 'just an emoji' is now carefully scrutinized.
-
When Downsizing, Does a Continuing Care Retirement Community Make Sense?
The idea that you'll never have to move again may sound tempting, but how about the costs? A financial planner explores the pros and cons of this style of retirement living.
-
An Expert's Guide to the Estate Planning Documents Everyone Needs
Estate planning is more than just writing a will. These are the documents you'll need in order to protect your family if you're seriously injured or worse.